Work

Output divergence in fixed exchange rate regimes

Year: 2025

Type: article

Abstract: This paper presents empirical evidence for the violation of nominal exchange regime neutrality. We find that fixing the exchange rate is associated with real output losses among countries with a high pre-peg inflation rate. In particular, ten years after fixing the exchange rate a country with a +1 percentage point (ppt) pre-peg wage inflation differential has a 2% lower real GDP per capita level and a 1% lower TFP level. The tradable sector is more affected than the non-tradable sector, which accords with the former’s greater exposure to international arbitrage.

Source: Journal of International Economics

DOI: 10.1016/j.jinteco.2025.104115

Authors: Yao Chen, Felix Ward

Institutions: Tinbergen Institute, Centre for Economic Policy Research, Erasmus University Rotterdam

Language: English

Topic: Monetary Policy and Economic Impact

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: hybrid

Estimated APC paid: $4,300