رژیم نرخ ارز و سطح قیمت ملی

This paper explores the role of exchange rate regimes in explaining deviations from the classic theory of purchasing power parity. Examining a broad panel of countries, I find that developing countries with fixed exchange rate regimes have national price levels that are 20 percent higher than those with flexible regimes. For industrial countries, the relation between regimes and price levels is qualitatively similar but weaker. I investigate several explanations for this pattern, and find that exchange-rate overshooting in floats, inflation inertia in pegs and expansionary policies can explain only 5 percentage points of the observed differences. I also show that even though the observed pattern could be the outcome of a class of open economy models pioneered by Obstfeld and Rogoff, the data provides limited empirical support for the predictions of this model.

A fundamental question in international economics is how does the price of the same basket of goods compare across countries when denominated in the same currency? This question about purchasing power has given birth to the most influential theory of exchange rate determination. The purchasing power parity doctrine asserts that the exchange rate between two currencies is determined by the two countries' relative price levels, and therefore prices in a common currency should be identical across countries. It has long been recognized that absolute purchasing power parity (PPP) does not hold in practice. Departures from PPP were already recognized in the work of Ricardo, Keynes (1923) and Viner (1933). Qualifications to the theory took two forms: structural deviations from PPP related to lasting changes in equilibrium relative prices due to real factors (as in Harrod, 1939) or transitory departures that arise as a result of the differential speed in adjustment of asset and goods prices (as in Keynes, 1923).1 Despite the early theoretical work on disparties from PPP, it was not until the work of Balassa (1964) and Kravis and Lipsey (1983) that a systematic deviation from PPP was confirmed empirically. These authors found that real income per capita levels systematically influence relative prices across countries. Balassa suggested that real income differences capture differences in productivity across countries, while Kravis and Lipsey rely on different factor endowments to explain the systematic correlation.2 Since then, the vast majority of empirical work related to PPP has focused on relative PPP, i.e., whether the price of the same basket of goods moves together over time across countries when expressed in a common currency.3 Tests of relative PPP are typically easier to perform as they only require data on real exchange rate indices rather than actual cross-country price data.4 Recently, Imbs et al. (2005) and Crucini and Shintani (2004) have used micro data to evaluate the differences in persistence of individual goods relative to aggregate indices. Despite the dominance of relative PPP studies, a number of empirical investigations have examined the extent of deviations from the law-of-one price using data on individual goods across cities in Europe and U.S. (e.g., Rogers, 2001 and Goldberg and Verboven, 2005). This paper explores the role of exchange rate regimes in explaining differences in the relative price of the same basket of goods across countries. Following Balassa (1964) and Kravis and Lipsey (1983), national price levels are used to measure the extent of deviations from absolute PPP. National price levels are defined as the ratio between two countries' relative price and their exchange rate. In particular, they are closely related to real exchange rates.5 The paper uncovers a strong empirical relationship between national price levels and exchange rate regimes that has not been previously studied. Specifically, developing countries with fixed exchange rates have higher national price levels than those with flexible rates. Using Penn World Table data for low and middle income countries, those with hard pegged regimes have national price levels that are approximately 20 percent higher than those that fully float.6 The cross-sectional difference is highly significant using all three available regime classifications (i.e., the IMF's official classification, Levy Yeyati and Sturzennegger's (2003) de-facto classification and Reinhart and Rogoff's (2002) classification) during the period between 1980 and 1998.7 For industrial countries, the association between regimes and price levels is qualitatively similar but weaker. After documenting the facts, the paper examines three potential explanations of the sign and magnitude of the observed pattern. Two of the explanations are taken from the existing literature on currency crises and inflation stabilizations, and should be considered as transitory departures from PPP. First, the tendency to run expansionary policies may lead to a real appreciation in countries with fixed exchange rate regimes but not in those with flexible regimes. This tendency may be especially pronounced in developing countries. Second, sudden regime shifts can explain the empirical association between prices and regimes. The exchange rate overshooting that accompanies a currency crisis implies that low national price levels can be temporarily associated with flexible regimes (see Frankel and Rose, 1996). Similarly, countries that anchor their exchange rates to stabilize inflation typically suffer from inflation inertia (see Cassel, 1928 and Kiguel and Liviatan, 1991).8 This inertia implies that a country that adopts a fixed exchange rate to stabilize inflation should have a high national price level. Unlike the first two explanations, the third one is based on a model of equilibrium national price levels and constitutes what Dornbusch (1988) defines as a structural departure. In their seminal work on stochastic general equilibrium models, Obstfeld and Rogoff (2000) showed that the second moments of economic disturbances could have significant impact on price and exchange rate levels.9 This framework can be used to show that countries that face more volatility of nominal marginal costs will have higher national price levels.10 In particular, pegs have higher national price levels than floats if uncertainty is predominantly real or arises from foreign monetary shocks. We show that given the relative variance of shocks observed in the data, the model can explain the sign of the empirical link between prices and regimes. Surprisingly, while we find some support for each of these three explanations they account for a small part of the strong negative relationship between regimes and national price levels. The two explanations that rely on transitory deviations from absolute PPP explain around 5 percentage points of the link between regimes and prices observed in the data. In particular, policy variables such as government expenditure and volatility of base money account for most of this reduction in the link between regimes and prices. Moreover, we show that the predictions of the stochastic open economy model receive only limited support in the data. As the volatility of real and foreign shocks rise, the national price levels in floats rise relative to pegs, opposite to the sign predicted by the model. Furthermore, the model suggests no direct effect of regimes on national price levels once the interaction between shocks and regimes is considered, while there is a strong effect in the data. The only prediction that finds some empirical support is related to the volatility of nominal shocks. As suggested by the model, when the volatility of nominal shocks rise, national price levels in floats rise relative to pegs. In sum, while the list of shocks considered in the empirical analysis is by no means exhaustive, these findings suggest that the model cannot adequately explain the strong link uncovered in the data. The link between national price levels and exchange rate regimes is important for several reasons. First, the empirical pattern found in this paper suggests a fresh contribution to the long-standing empirical debate on exchange rate regimes. This debate has been dominated by the predictions of the Mundell–Fleming–Dornbusch model which is silent about the determination of national price levels. Second, exploring the link between exchange rate regimes and national price levels can help explain the large difference that exists between national price levels of countries with similar income levels. For instance, the price level of Panama (a dollarized economy) in the 1990s was 60 percent that of the US while the price level of neighbouring Colombia (a country with a flexible exchange rate) was less than 40 percent that of the US. This difference cannot be explained by the conventional Harrod–Balassa–Samuelson effect or the Kravis–Lipsey–Bhagwati hypothesis because Panama and Colombia had similar levels of real income per capita in the 1990s.11 Third, since national price levels and real exchange rates are closely related (see footnote 5), distinguishing between transitory and structural deviations form PPP has important implications for the measurement of real exchange rate misalignment. The paper is organized as follows. Section 2 discusses the data used and descriptive statistics. Section 3 provides the benchmark regression analysis. Section 4 discusses the two explanations based on transitory deviation, develops a model of equilibrium national price levels and tests the different hypotheses. Section 5 summarizes the main contributions of the paper.

The main contribution of this paper is to uncover an empirical regularity between exchange rate regimes and national prices levels. The paper finds significant differences in national price levels across regimes. In developing countries with hard pegged regimes national price levels are roughly 20 percent higher than in those with fully flexible arrangements. The effect is present using both de facto and de jure exchange rate classifications. The paper then examines the origins of the higher national price levels found in pegs. The strong link between exchange rate regimes and price levels is only partly explained by transitory considerations. The paper considers the tendency of some developing countries of running expansionary policies, and episodes associated with currency crises, exchange rate based stabilizations and sudden switches in regimes. It finds that these considerations can account for 5 percentage points of the observed difference in national price levels across regimes. Therefore, after accounting for policy and short-run considerations, the core of the empirical relationship remains unexplained. In light of the low explanatory power of the transitory departures from PPP the paper explores the possibility that the differences observed in the data respond to different equilibrium national price levels across regimes. The paper builds on the new stochastic open economy models pioneered by Obstfeld and Rogoff to derive equilibrium national price levels across different exchange rate regimes. In theory, given the empirical variances of real and nominal shocks in the sample, the model can potentially account for the qualitative aspects of the data but fails to explain the magnitude of the observed differences. In the data, however, the predictions of the model find only limited support. None of the explanations presented in the paper are fully satisfactory to explain the magnitude of the empirical patterns observed. More work is needed to understand the reasons behind why countries with fixed exchange rate regimes are associated with higher national price levels than those that have flexible regimes.