Output divergence in fixed exchange rate regimes

2025/06/07 by Yao Chen, Felix Ward · 1 voice
Economics, Econometrics and Finance · #Global Financial Crisis and Policies #Market Dynamics and Volatility #Monetary Policy and Economic Impact

paper · doi:10.1016/j.jinteco.2025.104115

openalex publication_date 2025/06/07 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/23

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.

Citations

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• Estimating Dynamic Treatment Effects in Event Studies with Heterogeneous Treatment Effects
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Discussions

• New at JIE: "Output divergence in fixed exchange rate regimes" by Yao Chen and Felix Ward doi.org/10.1016/j.ji... [bsky, 0 points, 1 comments]