Transitions in exchange rate regimes in the aftermath of the global economic crisis (original) (raw)

The Choice of Exchange Rate Regimes: An Empirical Analysis for Transition Economies

RePEc: Research Papers in Economics, 2002

We analyze the choice of exchange rate regimes of the 25 transition economies in Europe and the CIS after 1990. The empirical results show that the traditional Optimum Currency Area considerations provide relevant guidance for the exchange rate regime choices in these countries. Moreover, regime choices are influenced by inflation rates, cumulative inflation differentials, and the availability of international reserves. That is, macroeconomic stabilization and the ability to commit to a credible exchange rate peg play important roles in the determination of exchange rate regime choices. Large government deficits have ambiguous effects; they increase the likelihood of moving from a flexible exchange rate to an intermediate peg as well as the likelihood of moving from a fixed to an intermediate peg.

The choice of exchange rate regime: An empirical analysis for transition economies*

The Economics of Transition, 2005

We analyze the choice of exchange rate regimes of the 25 transition economies in Europe and the CIS after 1990. The empirical results show that the traditional Optimum Currency Area considerations provide relevant guidance for the exchange rate regime choices in these countries. Moreover, regime choices are influenced by inflation rates, cumulative inflation differentials, and the availability of international reserves. That is, macroeconomic stabilization and the ability to commit to a credible exchange rate peg play important roles in the determination of exchange rate regime choices. Large government deficits have ambiguous effects; they increase the likelihood of moving from a flexible exchange rate to an intermediate peg as well as the likelihood of moving from a fixed to an intermediate peg.

Explaining the Transition between Exchange Rate Regimes*

Scandinavian Journal of Economics, 2005

This paper studies the transition between exchange rate regimes using a Markov chain model with time-varying transition probabilities. The probabilities are parameterized as nonlinear functions of variables suggested by the currency crisis and optimal currency area literature. Results using annual data indicate that inflation and, to a lesser extent, output growth and trade openness help explain the exchange rate regime transition dynamics.

Some exchange rates are more stable than others: short-run evidence from transition countries

2003

Abstract The paper investigates empirically the endogenous liquidity nexus of exchange rate determination on a sample of four transition economies. We find evidence in favor of the hypothesis of a nonlinear error correction process vis-à-vis longer-term trend deviations. The results suggest that early and successful exchange-rate market and financial-account liberalization pays off in terms of depth of the market and, hence, faster adjustment of national currencies to short-term shocks to the exchange rate.

FIxed, Float or Intermediate? A Cross-COuntry Time Series Analysis Of Exchange Rate Regimes

2004

In this paper we investigate the factors determining the choice of three exchange regimes using cross-country pooled data with the multinomial logit model. We find that the traditional variables such as the size of the economy, exchange rate volatility, capital mobility, inflation, and openness increase the probability of a floating or intermediate regime, as expected. Domestic policies, financial factors, adverse shocks to foreign variables (e.g., current account, foreign liabilities, reserves) also affect the choice of the exchange regime.

Classifying Exchange Rate Regimes: Deeds vs. Words1

2002

Most of the empirical literature on exchange rate regimes uses the IMF de jure classification based on the regime announced by the governments, despite the recognized inconsistencies between reported and actual policies in many cases. To address this problem, we construct a de facto classification based on data on exchange rates and international reserves from all IMF-reporting countries over the period 1974-2000, which we believe provides a meaningful alternative for future empirical work on the topic. The classification sheds new light on several stylized facts previously reported in the literature. In particular, we find that the de facto pegs have remained stable throughout the last decade, although an increasing number of them shy away from an explicit commitment to a fixed regime, a phenomenon we call "fear of pegging." We confirm the hollowing out hypothesis and show that, as expected, it does not apply to countries with limited access to capital markets. We also fi...

A statistically-based classification of de facto exchange rate regimes

2017

The paper offers a new de facto classification of the exchange rate regimes. The new algorithm for classifying regimes is presented and applied to advanced, emerging and developing economies in the period from 1995 to 2014. The well-known classifications were not constructed with the use of formal statistical tools except for the classification developed by Levy-Yeyati and Sturzenegger (2005). Following their approach, this paper employs several techniques of cluster analysis but with certain important differences including the separate treatment of financially open and financially closed economies. To classify the former group, the trimmed k means method is used, whereas the latter group is classified with the k-nearest neighbour method. Moreover, foreign exchange reserves and exchange rate are treated symmetrically, standardization of main variables captures changes in the international context, and the classification is a two-way classification and is more up-to-date. The compari...