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JOURNAL OF APPLIED BUSINESS AND ECONOMICS
Exchange Rate Regime: Does it Matter for Inflation?
Author(s): Dosse Toulaboe, Rory Terry
Citation: Dosse Toulaboe, Rory Terry, (2013) "Exchange Rate Regime: Does it Matter for Inflation?," Journal of Applied Business and Economics, Vol. 14, Iss. 1, pp. 56-71
Article Type: Research paper
Publisher: North American Business Press
Abstract:
This paper investigates the link between exchange rate regimes and inflation performance in developing
countries. De facto classifications of exchange rate systems are first obtained by using different
methodologies to assess the volatility of the observed nominal effective exchange rates. The empirical
work on the linkage between exchange rate regimes and inflation is then undertaken by developing and
estimating an expanded version of the conventional Philips curve model. Two major conclusions are
reached on the basis of our results: (1) the rate of inflation is unambiguously positively linked to real
exchange rate depreciation regardless of exchange rate arrangement and, more specifically, (2) that the
rate of inflation is much more responsive to the real exchange rate levels in the flexible rate systems than
in the fixed regimes, suggesting that the former regime is more inflationary.
