Macroeconomic Policies, Bureaucracy and Deregulation: The Choice of the Exchange Rate Regime

Abstract

This chapter examines the contemporaneous relationship between the exchange rate regime and structural economic reforms over a period of 30 years. Using panel data techniques, we look at both a broad (“world sample”) and an OECD country sample. We investigate empirically whether structural reforms are complements or substitutes for monetary commitment in the attempt to improve macroeconomic performance. Our results suggest that, on average, an exchange rate rule positively correlates with the overall structural reforms and trade liberalization in particular. We do not find a significant and robust impact of exchange rate commitment on labor and product market reform, on the other hand. The results are similar for both the wider, more heterogeneous world sample and the panel of OECD economies. They contradict the hypothesis that exchange rate commitments may have slowed down the pace of structural reform, but neither provide robust evidence that losing the possibility of an exchange rate adjustment promotes labor and product market reforms.