to the source. Pegged Exchange Rate Regimes – A Trap? (original) (raw)

Exchange Rate Policies: The Experience with the Crawling Peg

2013

The two policies involved frequent upward adjustments of the exchange rate, lasted more than five years, and were established during periods of acute balance of payments difficulties and sizable inflation rates. However, they differ with respect to the political environment in which they were implemented and with respect to the role assigned to the exchange rate, the stability of the policy, the size of the individual nominal adjustments, and the criteria used to determine modifications of the real rate. Subsequently, from October 1973 to June 1979 a second, diverse, experience of this kind of exchange rate system was carried out. Finally, in the 1980s, after the 1982 crisis, a crawling peg was reinstated that evolved into a crawling band and survived until September 1999. Here we concentrate on the first two experiences; the latter is covered in Ffrench-Davis (2010).

Exchange rate regimes in the modern era: fixed, floating, and flaky

2011

Abstract: This paper provides a selective survey of the incidence, causes, and consequences of a country's choice of its exchange rate regime. I begin with a critical review of Michael Klein and Jay C. Shambaugh's (2010) book Exchange Rate Regimes in the Modern Era, and then proceed to provide an alternative overview of what the economics profession knows and needs to know about exchange rate regimes.

Toward a Stable System of Exchange Rates: Implications of the Choice of Exchange Rate Regime

This paper conducts a comprehensive empirical analysis to examine the stability of the overall system of exchange rates along two dimensions: does the choice of exchange rate regime help individual countries achieve their domestic macroeconomic goals? And does this choice of regime facilitate the country's interaction with the rest of the system? The empirical findings suggest that there is no universally "right" regime—pegged and intermediate regimes are associated with low nominal volatility and higher economic growth, especially for emerging market economies, and with deeper trade integration, which is growth enhancing. However, floating regimes imply a smoother external adjustment and lower susceptibility to financial crises. Individual countries should therefore tailor the choice of exchange rate regime according to their particular economic challenges, with the proviso that those opting for less flexible regimes should ensure strong macroeconomic fundamentals to ...

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...