Aman, Zunaira, Mallick, Sushanta and Nemlioglu, Ilayda ![]() ![]() |
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Abstract
The literature lacks consensus on the role of currency regimes in explaining external competitiveness. Countries not only differ in terms of currency regimes, but can also have different institutional arrangements, namely trade agreements and inflation targeting (IT) frameworks in addition to the overall quality of governance. Hence, using the real effective exchange rate and by covering 35 developing countries over the period 1975–2014, we investigate the role of currency regimes in explaining the degree of misalignment while considering institutional factors. First, we find that intermediate regimes limit the currency misalignment with greater financial openness (FO). Second, non-reciprocal preferential trade agreements improve price competitiveness, whereas free trade and reciprocal ones can only be beneficial with a higher degree of FO. Third, misalignments in fixed regimes decline in the presence of stronger institutions or in countries with an IT type of monetary policy framework. The above results remain robust to alternative specifications.
Item Type: | Article |
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Date Type: | Publication |
Status: | Published |
Schools: | Business (Including Economics) |
Additional Information: | This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0/), which permits unrestricted re-use, distribution, and reproduction in any medium, provided the original work is properly cited. |
Publisher: | Cambridge University Press |
ISSN: | 1744-1374 |
Date of First Compliant Deposit: | 16 July 2021 |
Date of Acceptance: | 9 June 2021 |
Last Modified: | 11 May 2023 21:27 |
URI: | https://orca.cardiff.ac.uk/id/eprint/142619 |
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