Abstract
Exchange rates and exchange rate regimes in a constantly changing economy have always attracted much attention from scholars. However, there has not been a consensus on the effect of exchange rate on economic growth. To determine the direction and magnitude of the impact of an exchange rate regime on economic growth, this study uses the exchange rate database constructed by Reinhart and Rogoff. This study also employs the GMM (Generalized Method of Moments) technique on unbalanced panel data to analyze the effect of the exchange rate regime on economic growth in Asian countries from 1994 to 2016. Empirical results suggest that a fixed exchange rate regime (weak flexibility) will affect economic growth in the same direction. As such, results from the study will serve as quantitative evidence for countries in the Asian region to consider when selecting a suitable policy and an exchange rate regime to attain high economic growth.
Highlights
In a market economy with a flexible exchange rate, the exchange rate changes daily, or by the minute
This paper adds to the literature by supplying new evidence on the impact of exchange rate regimes on economic growth
Using unbalanced panel data of 23 economies over 23 years, we find that a country with a less flexible exchange rate regime will have a higher growth rate
Summary
In a market economy with a flexible exchange rate, the exchange rate changes daily, or by the minute. The fluctuation in exchange rates has an impact on the economy (reflected by macroeconomic variables) and on society. In addition to policymakers and enterprises, the majority of the public pays attention to exchange rate changes. There is not a universally suitable exchange rate regime for every country in the world. Some countries choose a floating exchange rate regime when the price of a country’s currency relative to other currencies entirely depends on the supply and demand of related currencies. One of the representative countries with a floating exchange rate regime is Australia. Some countries may choose a fixed exchange rate (Hong Kong), while others, such as Vietnam, opt for a managed floating system
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