Effectiveness of monetary policy : Choice of exchange rate regimes

In this study, we introduce an Error correction model (ECM) to investigate the role of using an exchange rate regime as a shock absorber in the case of terms of trade shock. We investigate this role with various criteria. First, we investigate this role by using different definitions of exchange rate regime classifications, such as De Jure classification and De Facto classification. De Jure classification is referred to as an official exchange rate regime which is used by the International Monetary Fund (IMF), while De Facto classification is the actual performance of each countries exchange rate regime. Furthermore, we check this relationship and consistency by separating samples into three groups using criteria of export commodities, development level, and openness level. As for the purpose of this study, we attempt to measure the ability of different exchange rate regimes to absorb the terms of trade shock on the growth rate of real gross domestic product (GDP) per capita of different exchange rate regimes. Finally, we try to compare the results from different groups of countries