Exchange-rate regimes and economic growth: an empirical evaluation

Abstract

Based on a data set of 123 economies, this article empirically investigates the relation between exchange-rate regimes and economic growth. We find that growth performance is best under intermediate exchange-rate regimes, while the smallest growth rates are associated with flexible exchange rates. Nevertheless, this conclusion is tempered when we analyse the countries by income level: even though countries that adopt intermediate exchange-rate regimes are characterized by higher economic growth, the higher the level of income, less difference in growth performance across exchange-rate regimes.

Keywords:

• exchange rate regime
• economic growth

JEL Classification:

• E42
• F31

Acknowledgements

The authors thank Ethan Ilzetzki for kindly providing us with the updated database on exchange rate arrangements. Responsibility for any remaining errors rests with the authors.

Funding

The authors gratefully acknowledge financial support from the Spanish Ministry of Economy and Competitiveness [project ECO2011-23189]. María del Carmen Ramos-Herrera acknowledges her grant from the Spanish Ministry of Science and Innovation [FPU AP2008-004015].

Notes

¹ Note that, in contrast to the arithmetic mean, the trimmed and winsorized means are robust measures of central tendency because they are less sensitive to outliers.