University of Notre Dame
Dept. of Economics
434 Flanner Hall
Notre Dame, IN 46556
NBER Working Papers and Publications
|April 2005||Effective Exchange Rate Classifications and Growth|
with Byung-Joo Lee, Nelson C. Mark: w11272
We propose an econometric procedure for obtaining de facto exchange rate regime classifications which we apply to study the relationship between exchange rate regimes and economic growth. Our classification method models the de jure regimes as outcomes of a multinomial logit choice problem conditional on the volatility of a country's effective exchange rate, a bilateral exchange rate and international reserves. An `effective' de facto exchange rate regime classification is then obtained by assigning country-year observations to the regime with the highest predictive probability obtained from the estimation problem. An econometric investigation into the relationship between exchange rate regimes and GDP growth finds that growth is higher under stable currency-value regimes. Significant asym...