Could the Exchange Rate Regime Reduce Macroeconomic Volatility?

This study intends to determine the relationship existing between the exchange rate regime and real volatility. After revising the theoretical and empirical results of previous research, it is proposed a new methodology that corrects deficiencies of previous empirical papers. The results show non-neutrality of the exchange rate regime. Particularly, it is found that the more rigid the regime is the grater real volatility will be. Even when it is performed an exchange rate regime classification that allows a comparison between consistent pegging and consistent floating, the former has a higher volatility. Countries with “fear of floating†behavior exhibit lower volatility than consistent pegs