Do Exchange Rate Regimes Matter for Inflation and Exchange Rate Dynamics? The Case of Central America

Bibliographic Data

ID3420764
AuthorsRodrigo Caputo G, Igal Magendzo
Year2011
Volume43
Issue2
Pages327-354
Publication date2011-05-01
Open AccessYes
TypeARTICLE
VenueJournal of Latin American Studies (JOURNAL)
Journal identifiersISSN: 0022-216X • E-ISSN: 1469-767X
PublisherCambridge University Press (CUP) (PUBLISHER)
DOI10.1017/s0022216x11000058
OpenAlexW2059499795
LanguageEN
References cited20

This paper makes an empirical contribution to discussion of the optimal exchange rate regime. Using a new dataset for Central American countries, we compare the dynamics of the real exchange rate (RER) between dollarised and non-dollarised countries. Our results show that the two dollarised countries in the region, El Salvador and Panama, are quite different in terms of RER dynamics. In El Salvador the RER spends more time away from its equilibrium level than in the non-dollarised countries in the region, while the contrary is true for Panama. We also find that inflation persistence is similar in El Salvador to the other countries, but smaller in Panama. This leads us to the conclusion that some degree of exchange rate flexibility helps countries to have a more aligned RER. Nevertheless, a long-lived, highly credible dollarised economy, like Panama, can reduce inflation persistence to such an extent that RER misalignments are in fact less frequent than in countries with more flexible exchange rate regimes

Economics · Exchange rate · Exchange-rate flexibility · Exchange-rate regime · Flexibility (engineering) · Inflation (cosmology) · International economics · Latin Americans · Monetary economics · Panama · Persistence (discontinuity) · Physics · Political science · Statistics · Economic Theory and Policy · Global Financial Crisis and Policies · Mathematics · Monetary Policy and Economic Impact

Tools

Open DOISci-Hub