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An empirical assessment of exchange arrangements and inflation performance

Cruz-Rodríguez, Alexis (2016): An empirical assessment of exchange arrangements and inflation performance.

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Abstract

This article provides empirical support for the hypothesis that different exchange rate regimes have an impact on inflation in advanced, emerging and developing countries. The effects of different exchange rate regimes on inflation performance are examined through least squares dummy variables regressions using panel data on 125 countries for the post-Bretton Woods (1974-1999). Also, this article addresses the issue of measurement errors in the classification of exchange rate regimes by using four different classification schemes. Three de facto and one de jure classifications are used. Consequently, the sensitivity of these results to alternative exchange rate classifications is also tested. The empirical findings indicate that countries with fixed regimes tend to have a lower inflation rate compared to floating and intermediate exchange rate regimes, particularly in emerging and developing countries.

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