Crisis and Recovery: Role of the Exchange Rate Regime in Emerging Market Countries

Abstract

This paper examines the role of the exchange rate regime in explaininghow emerging market economies fared in the recent global financialcrisis, particularly in terms of output losses and growth resilience.After controlling for regime switches during the crisis, using alternativedefinitions for pegs, and taking account of other likely determinants,we find that the growth performance for pegs was not different fromthat of floats during the crisis. For the recovery period 2010-11,pegs appear to be faring worse, with growth recovering more slowlythan floats. These results suggest an asymmetric effect of the regimeduring and recovering from the crisis. We also find that proxiesof the trade and financial channels are important determinants ofgrowth performance during the crisis, while only the trade channelappears important for the recovery thus far.