Terms of trade and exchange rate regimes in developing countries
By: Christian Broda.
Contributors: Federal Reserve Bank of New York.
Series: Staff reports ;; no. 148; Staff reports (Federal Reserve Bank of New York : Online) ;; no. 148.
Publisher: Federal Reserve Bank of New York
Published: 2002
Place of publication: [New York, N.Y.]
Language: eng
Format: Electronic resource
Subjects: Terms of trade -- Developing countries.; Foreign exchange rates -- Developing countries.
Description: "Since Friedman (1953), an advantage often attributed to flexible exchange rate regimes over fixed regimes is their ability to insulate more effectively the economy against real shocks.  I use a post-Bretton Woods sample (1973-96) of seventy-five developing countries to assess whether the responses of real GDP, real exchange rates, and prices to terms-of-trade shocks differ systematically across exchange rate regimes.  I find that responses are significantly different across regimes in a way that supports Friedman's hypothesis.  In response to a negative terms-of-trade shock, countries with fixed regimes experience large and significant declines in real GDP, and the real exchange rate depreciates slowly and by means of a fall in prices.  Countries with more flexible regimes, by contrast, tend to have small real GDP losses and immediate large real depreciations.  The contributions of terms-of-trade disturbances to the actual fluctuation of real GDP, real exchange rates, and prices are also examined"--Federal Reserve Bank of New York web site.
Notes: Includes bibliographical references.
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