Exchange Rate Regimes and Business Cycles

This study investigates the effect of exchange rate regimes (ERRs) on classical business cycles in advanced (AE) and emerging market and developing economies (EMDE). Con-sidering the difference between words and deeds of the monetary authorities, we use the de facto ERR classification. Our logit and probit estimation results indicate that, in AE, the probability of expansion rises with ERR flexibility as compared to pegged ERR. In EMDE, the expansion probability increases with limited flexibility ERR while diminishes with ma-naged and freely floating ERRs. We also find that worsening (favorable) global financial cycle increases recession (expansion) probability during the post-globalization period.