Fixed Exchange Rate Regimes and Price Stability: Evidence from MENA Countries

In this study, we empirically test whether pegged regime was successful in achieving and maintaining consistently low inflation rates in 17 MENA countries over the period of 1980-2007. Taking into account unobserved country heterogeneity, as well as, the endogeneity of exchange rate regimes we estimate a dynamic panel data model of the effects of exchange rate regimes on inflation using officially announced exchange rate regimes in addition to de facto regimes in place. Our findings suggest a strong link between the choice of the exchange rate regime and inflation performance.[...]