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Surprising Similarities in Recent Monetary Regimes of Small Economies

Andrew K. Rose from Berkeley-Haas, CEPR, and NBER delves into the impact of monetary regimes on small economies post the Global Financial Crisis and examines the unexpected similarities between floating with inflation targeting and hard fixed regimes. Despite historical trends, these regimes exhibit stability in growth, inflation, fiscal policy, and more.

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Surprising Similarities in Recent Monetary Regimes of Small Economies

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  1. Surprising Similarities:Recent Monetary Regimes of Small Economies Andrew K. Rose Berkeley-Haas, CEPR and NBER

  2. Focus • Q: Does monetary regime matter? • My interests • Recent: GFC and aftermath (2007-2012) • Small Countries: Not China, EMU, Japan, UK, USA • 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

  3. 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

  4. 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

  5. Rose: Monetary Regime Similarities

  6. 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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