Denmark's Fixed Exchange Rate Regime and the Delayed Recovery from the Global Financial Crisis: A Comparative Macroeconomic Analysis

Discussion Papers on Business and Economics, University of Southern Denmark, 10/2014

21 Pages Posted: 13 May 2014

See all articles by Thomas Barnebeck Andersen

Thomas Barnebeck Andersen

University of Southern Denmark - Department of Business and Economics

Nikolaj Malchow-Møller

University of Southern Denmark - Department of Business and Economics

Date Written: May 12, 2014

Abstract

This paper compares Denmark’s growth performance to that of the other 18 non-Eurozone OECD economies during 2008-12. Denmark is the only country with a fixed exchange rate regime; the other 18 countries all have flexible exchange rates, mostly as part of an inflation-targeting framework. At the same time, Denmark is one of the worst growth performers during 2008-12. Our analysis indicates that the lack of monetary policy independence is central to understanding the meager Danish performance. Aggressive monetary policy during 2008-09 is an important predictor of economic growth during 2008-12; and Denmark, having outsourced monetary policy to the ECB, did not pursue monetary easing as aggressively as most other countries. Overall, the analysis suggests that had Denmark been able to follow Sweden in aggressively cutting interest rates in the wake of the Global Financial Crisis, it would have added three quarters of a percentage point to average annual real GDP growth during 2008-12.

Keywords: exchange rate regimes, monetary policy, financial crisis, economic growth

JEL Classification: E52, E62, E65, F33, O57

Suggested Citation

Andersen, Thomas Barnebeck and Malchow-Møller, Nikolaj, Denmark's Fixed Exchange Rate Regime and the Delayed Recovery from the Global Financial Crisis: A Comparative Macroeconomic Analysis (May 12, 2014). Discussion Papers on Business and Economics, University of Southern Denmark, 10/2014, Available at SSRN: https://ssrn.com/abstract=2435859 or http://dx.doi.org/10.2139/ssrn.2435859

Thomas Barnebeck Andersen (Contact Author)

University of Southern Denmark - Department of Business and Economics ( email )

Campusvej 55
DK-5230 Odense, 5000
Denmark

Nikolaj Malchow-Møller

University of Southern Denmark - Department of Business and Economics ( email )

DK-5230 Odense
Denmark

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