The Impact of Exchange Rate Regimes on Economic Growth with Continuous Classification of de facto Regimes

Abstract:

We construct a new database characterizingthe de facto Exchange Rate Regime (ERR) for 145 countries during the full post-Bretton Woods period. With this new database, we firstly investigate the global changes of de facto ERRs over time, and then study the relationship between ERR and economic growth. Our findings contradict both “corner hypothesis” and “fear of floating”. It is shown that intermediate ERR are positively related to economic growth at the greatest significance level. We also find this relationship varies among countries at different income levels, and the choice of ERRappearsto be more important for low-income countries rather than high-income ones.