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Surprising Similarities:
Recent Monetary Regimes
of Small Economies
Andrew K. Rose
Berkeley-Haas, CEPR and NBER
Focus
• Q: Does monetary regime matter?
• My interests
1. Recent: GFC and aftermath (2007-2012)
2. Small Countries: Not China, EMU, Japan, UK, USA
3. Empirical: Panel data, 170 countries
• Compare two extreme monetary regimes
– Floating with Inflation Target (>20% Global GDP)
– Hard Fix (<10% Global GDP)
Rose: Monetary Regime Similarities
2
Monetary Stability
• Few monetary regime switches recently
• Unexpected because:
– Historical counter-cyclicality
– Size of GFC and Great Recession
• Why the Stability? What’s New?
– Countries that Float with Inflation Targeting
– (Hard Fixes always around)
• Natural to compare (two) stable regimes
Rose: Monetary Regime Similarities
3
Comparing Hard Fixers with
Inflation Targeters
• Broadly Similar Outcomes
– Business Cycles, Capital Flows, Inflation, Trade,
Current Account, Fiscal, Money, Reserves, Capital
Controls, Exchange Rates, Asset Prices, …
– Methodologies: graphs, regressions, matching, …
• Implausible or Boring?
– Surprising: two very different monetary regimes
– Banal: literature since Baxter-Stockman
• Regimes matter for little (except exchange rate)
Rose: Monetary Regime Similarities
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Quantile Plots for Small Economies, 2007-2012
Current Account, %GDP
30
20
0
10
15
20
40
20
-10
0
10
20
6
International Reserve Growth
4
2
0
-40
-20
0
0
20
-20
Long Bond Yield
-10
0
10
20
Stock Market Change
10
100
15
200
20
Real Eff Exch Rate Change
30
10
-30 -20 -10
60
-.5
0
.5
1
1.5
Property Price Change
-20
-10
0
10
Inflation Targeters
20
0
5
10
Inflation Targeters
15
-50
-100
0
-30
5
0
0
0
0
20
-10
10 20
20
0
-20
Net Capital Flows, %GDP
0
-20
Hard Fixers
-30
Capital Outflows, %GDP
-80 -60 -40 -20
-20
0
Hard Fixers
20 40 60 80
Capital Inflows, %GDP
5
-2
0
100
-20
50
-40
-50
-10
-50
0
-20 -10
0
0
10
20
50
0
Hard Fixers
Government Budget, %GDP
10 20 30
CPI Inflation
50
Demeaned GDP Growth
-100
0
100
Inflation Targeters
Rose: Monetary Regime Similarities
200
-50
0
50
Inflation Targeters
100
5
Conclusion
• Regime differences persist since unimportant
– Growth, inflation, fiscal policy, current account,
reserve growth … do not vary much by regime
– Consistent with literature if counter-intuitive
• Small countries now have stable alternative to
hard fix; float with inflation target
– Both regimes survived GFC and aftermath
• This monetary stability new (compare: 1930s/1970s)
• Cross-regime similarities, so can’t easily differentiate
Rose: Monetary Regime Similarities
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