Floating versus fixed: How exchange rate regimes affect business cycles comovement between advanced and emerging economies

Figures & data

Table 1. Definition and data sources

Variable	Definition	Sources
$\mathrm{Q}\mathrm{C}\mathrm{O}\mathrm{R}{\mathrm{R}}_{\mathrm{i}\mathrm{j}\mathrm{t}}$	The quasi-correlation between the real GDP growth rates of the emerging country (i) and the advanced country (j) for the period (t)	Author’s calculation. Growth rates are taken from the International Monetary Fund (IMF—International Financial Statistics)
$ER{R}_{i,t}$	The exchange rate regime of the emerging country (i) in the period (t)	The « FINE » classification of Ilzetzki et al. (2017)
$ER{R}_{j,t}$	The exchange rate regime of the advanced country (j) in the period (t)	The « FINE » classification of Ilzetzki et al. (2017)

Table 2. Unit root tests on panel data

Variables	at level (I 0)		at first order (I 1)
	LLC	IPS	LLC	IPS
$\mathrm{Q}\mathrm{C}\mathrm{O}\mathrm{R}{\mathrm{R}}_{\mathrm{i}\mathrm{j}\mathrm{t}}$	13.2850	−66.7189***	−211.795***	−215.015***
	(1.000)	(0.000)	(0.000)	(0.000)
$ER{R}_{i,t}$	26.2795	4.16593	−193.145***	−166.346***
	(1.000)	(1.000)	(0.000)	(0.000)
$ER{R}_{j,t}$	2.06186	1.42035	−141.727***	−109.786***
	0.9804	0.9222	(0.000)	(0.000)
	0.9352	0.0903	(0.000)	(0.000)

Source: Author’s calculations. The probabilities are in brackets, *** significant at the 1% level. The LLCabbreviations: Levine-Lin-Chu; IPS: Im-Pesaran-Shin.

Table 3. Panel unit root tests with cross-sectional dependence: Pesaran—CIPS

A- quasi-correlation of Real GDP growth rates ($\mathrm{Q}\mathrm{C}\mathrm{O}\mathrm{R}{\mathrm{R}}_{\mathrm{i}\mathrm{j}\mathrm{t}}$)
Sample: 2000Q1 2016Q4
Cross-sections: 910
Balanced observations: 67
Total observations: 60,970
Deterministics: Constant and trend
CIPS unit root test
Null hypothesis: Unit root
Test results:
Statistic			t-stat		p-value
CIPS:			−3.66090		<0.01
Truncated CIPS:			−3.58990		<0.01
Critical values:
Level			CIPS		Trunc. CIPS
1%			−2.62		−2.62
5%			−2.54		−2.54
10%			−2.50		−2.50
B- Exchange rate regime of the emerging country ($ER{R}_{i,t}$)
Sample: 2000Q1 2016Q4
Cross-sections: 910
Balanced observations: 67
Total observations: 60,970
Deterministics: Constant and trend
CIPS unit root test
Null hypothesis: Unit root
Test results:
Statistic		t-stat		p-value
CIPS:		NA		≥0.10
Truncated CIPS:		−1.07806		≥0.10
Critical values:
Level		CIPS		Trunc. CIPS
1%		−2.62		−2.62
5%		−2.54		−2.54
10%		−2.50		−2.50
C- Exchange rate regime of the advanced country ($ER{R}_{j,t}$)
Sample: 2000Q1 2016Q4
Cross-sections: 910
Balanced observations: 67
Total observations: 60,970
Deterministics: Constant and trend
CIPS unit root test
Null hypothesis: Unit root
Test results:
Statistic		t-stat		p-value
CIPS:		NA		≥0.10
Truncated CIPS:		−1.11625		≥0.10
Critical values:
Level		CIPS		Trunc. CIPS
1%		−2.62		−2.62
5%		−2.54		−2.54
10%		−2.50		−2.50

Source: Author’s calculations.

Table 4. Panel cointegration tests

Test	Stat.	Dependent Variables
		$\mathbf{Q}\mathbf{C}\mathbf{O}\mathbf{R}{\mathbf{R}}_{\mathbf{i}\mathbf{j}\mathbf{t}}$	$\mathit{E}R{R}_{i,t}$	$\mathit{E}R{R}_{j,t}$
Pedroni (,2004)	Panel v-Statistic	−10.95561	−21.28176	−76.78445
	Panel rho-Statistic	0.853057	3.676319	3.234801
	Panel PP-Statistic	−10.30856***	1.378285	1.474179
	Panel ADF-Statistic	2.914866	3.091208	3.453638
	Group rho-Statistic	0.408908	5.541064	7.101475
	Group PP-Statistic	−15.64676***	1.586179	2.582151
	Group ADF-Statistic	2.889651	4.287354	4.603574
Observation		61,880	61,880	61,880
Inference		No cointegration	No cointegration	No cointegration

Source: Author’s calculations. *** significant at the 1% level, ** significant at the 5% level.

Table 5. Panel Granger causality based on VAR estimation

Period	2000T1-2016T4
Observation	57,330
Number of lags	5
Dependent Variable	Direction of causality/explanatory variables
	χ2 (p-value)
	$\mathrm{Q}\mathrm{C}\mathrm{O}\mathrm{R}{\mathrm{R}}_{\mathrm{i}\mathrm{j}\mathrm{t}}$	$\mathrm{E}\mathrm{R}{\mathrm{R}}_{\mathrm{i},\mathrm{t}}$	$\mathrm{E}\mathrm{R}{\mathrm{R}}_{\mathrm{j},\mathrm{t}}$
$\mathrm{Q}\mathrm{C}\mathrm{O}\mathrm{R}{\mathrm{R}}_{\mathrm{i}\mathrm{j}\mathrm{t}}$		47.27094***	74.2832***
		(0.000)	(0.000)
$\mathrm{E}\mathrm{R}{\mathrm{R}}_{\mathrm{i},\mathrm{t}}$	25.53052***		5.301288
	(0.000)		(0.3802)
$\mathrm{E}\mathrm{R}{\mathrm{R}}_{\mathrm{j},\mathrm{t}}$	89.44512***	2.252464
	(0.000)	(0.8132)

Source: Author calculations. The ***, ** and * denote a significance of 1%, 5% and 10%, respectively.

Table 6. Dumitrescu Hurlin panel causality tests

Sample: 2000Q1 2016Q4
Lags: 2
Null Hypothesis:	W-Stat.	Zbar-Stat.	Prob.
$ER{R}_{j,t}$ does not homogeneously cause $\mathrm{Q}\mathrm{C}\mathrm{O}\mathrm{R}{\mathrm{R}}_{\mathrm{i}\mathrm{j}\mathrm{t}}$	2.74983	9.61815	0.0000
$\mathrm{Q}\mathrm{C}\mathrm{O}\mathrm{R}{\mathrm{R}}_{\mathrm{i}\mathrm{j}\mathrm{t}}$ does not homogeneously cause $\mathrm{E}\mathrm{R}{\mathrm{R}}_{\mathrm{j},\mathrm{t}}$	2.04090	−0.37923	0.0045
$\mathrm{E}\mathrm{R}{\mathrm{R}}_{\mathrm{i},\mathrm{t}}$ does not homogeneously cause $\mathrm{Q}\mathrm{C}\mathrm{O}\mathrm{R}{\mathrm{R}}_{\mathrm{i}\mathrm{j}\mathrm{t}}$	1.71805	−4.93221	0.0000
$\mathrm{Q}\mathrm{C}\mathrm{O}\mathrm{R}{\mathrm{R}}_{\mathrm{i}\mathrm{j}\mathrm{t}}$ does not homogeneously cause $\mathrm{E}\mathrm{R}{\mathrm{R}}_{\mathrm{i},\mathrm{t}}$	3.13032	14.9839	0.0000

Source: Author’s calculations.

Figure 1. Impulse response

Figure 1. (continued).

Appendix 1. Reinhart and Rogoff “FINE” classification

Grid	Exchange rate regime
1	No separate legal tender
2	Pre announced peg or currency board arrangement
3	Pre announced horizontal band that is narrower than or equal to ±2%
4	De facto peg
5	Pre announced crawling peg
6	Pre announced crawling band that is narrower than or equal to ±2%
7	De factor crawling peg
8	De facto crawling band that is narrower than or equal to ±2%
9	Pre announced crawling band that is wider than or equal to ±2%
10	De facto crawling band that is narrower than or equal to ±5%
11	Moving band that is narrower than or equal to ±2% (i.e., allows for both appreciation and depreciation over time)
12	Managed floating
13	Freely floating
14	Freely falling
15	Dual market in which parallel market data is missing.

Source: Reinhart and Rogoff (Reinhart et al., 2003)

Reinhart and Rogoff “COARSE” classification

Grid	Régimes de change
1	Fixed regime	No separate legal tender
1		Pre announced peg or currency board arrangement
1		Pre announced horizontal band that is narrower than or equal to ±2%
1		De facto peg
2	Limited flexibility	Pre announced crawling peg
2		Pre announced crawling band that is narrower than or equal to ±2%
2		De factor crawling peg
2		De facto crawling band that is narrower than or equal to ±2%
3	Manage floating	Pre announced crawling band that is wider than or equal to ±2%
3		De facto crawling band that is narrower than or equal to ±5%
3		Moving band that is narrower than or equal to ±2% (i.e., allows for both appreciation and depreciation over time)
3		Managed floating
4	Freely floating	Freely floating
5	Freely falling	Freely falling
6	Dual market in which parallel market data is missing	Dual market in which parallel market data is missing.

Source: Reinhart & Rogoff, 2004)

Ilzetzki, E., Reinhart, C., Rogoff, K., & National bureau of economic research, inc. 2017. Exchange arrangements entering the 21st century: which anchor will hold?NBER Working Papers No 23134.

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Reinhart, C. M., Rogoff, K. S., & Savastano, M. A., 2003. Debt intolerance. Brookings Papers on Economic Activity, 341, 1–74. https://EconPapers.repec.org/RePEc:bin:bpeajo:v:34:y:2003:i:2003-1:p:1-74

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