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Exchange Rate Regimes in the Modern Era : Fixed, Floating, and Flaky

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  • Andrew K. Rose

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. While a fixed exchange rate with capital mobility is a well-defined monetary regime, floating is not; thus, it is unclear whether it is theoretically sensible to compare countries across exchange rate regimes. This comparison is quite difficult to make empirically. It is often hard to figure out what the exchange rate regime of a country is in practice, since there are multiple conflicting regime classifications. More importantly, similar countries choose radically different exchange rate regimes without substantive consequences for macroeconomic outcomes like output growth and inflation. That is, the profession knows surprisingly little about either the causes or consequences of national choices of exchange rate regimes. But since the consequences of these choices are small, understanding their causes is of only academic interest. (JEL E52, F33)

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Bibliographic Info

Article provided by American Economic Association in its journal Journal of Economic Literature.

Volume (Year): 49 (2011)
Issue (Month): 3 (September)
Pages: 652-72

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Handle: RePEc:aea:jeclit:v:49:y:2011:i:3:p:652-72

Note: DOI: 10.1257/jel.49.3.652
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  1. Flood, Robert P & Rose, Andrew K, 1993. "Fixing Exchange Rates: A Virtual Quest for Fundamentals," CEPR Discussion Papers, C.E.P.R. Discussion Papers 838, C.E.P.R. Discussion Papers.
  2. Tornell, Aaron & Velasco, Andres, 2000. "Fixed versus flexible exchange rates: Which provides more fiscal discipline?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 45(2), pages 399-436, April.
  3. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, Princeton University Press, edition 1, volume 1, number 8973.
  4. Michael W. Klein, 2002. "Dollarization and Trade," NBER Working Papers 8879, National Bureau of Economic Research, Inc.
  5. Alexis Cruz-Rodriguez, 2013. "Choosing and Assessing Exchange Rate Regimes: a Survey of the Literature," Revista de Analisis Economico – Economic Analysis Review, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines, vol. 28(2), pages 37-61, October.
  6. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
  7. repec:cto:journl:v:20:y:2000:i:1:p:115-122 is not listed on IDEAS
  8. Alexander Guembel & Oren Sussman, 2004. "Optimal Exchange Rates: A Market Microstructure Approach," Journal of the European Economic Association, MIT Press, MIT Press, vol. 2(6), pages 1242-1274, December.
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Cited by:
  1. Graham Bird & Alex Mandilaras & Helen Popper, 2012. "Explaining Shifts in Exchange Rate Regimes," School of Economics Discussion Papers, School of Economics, University of Surrey 1312, School of Economics, University of Surrey.
  2. Victor Pontines, 2013. "How Useful Is an Asian Currency Unit (ACU) Index for Surveillance in East Asia?," Finance Working Papers 23398, East Asian Bureau of Economic Research.
  3. Alan J. Auerbach & Yuriy Gorodnichenko, 2013. "Output Spillovers from Fiscal Policy," American Economic Review, American Economic Association, American Economic Association, vol. 103(3), pages 141-46, May.
  4. Dumitriu, Ramona & Stefanescu, Razvan, 2013. "Utilizarea cursurilor valutare drept ancore nominale antiinflaţioniste
    [The use of exchange rates as nominal anchors]
    ," MPRA Paper 52415, University Library of Munich, Germany.
  5. Coulibaly, Issiaka & Davis, Junior, 2013. "Exchange rate regimes and economic performance: Does CFA zone membership benefit their economies?," MPRA Paper 54075, University Library of Munich, Germany.
  6. Atish R. Ghosh & Jonathan David Ostry & Mahvash Saeed Qureshi, 2014. "Exchange Rate Management and Crisis Susceptibility: A Reassessment," IMF Working Papers 14/11, International Monetary Fund.
  7. Manuk Ghazanchyan & Janet Gale Stotsky, 2013. "Drivers of Growth: Evidence from Sub-Saharan African Countries," IMF Working Papers 13/236, International Monetary Fund.
  8. Grier, Kevin B. & Smallwood, Aaron D., 2013. "Exchange rate shocks and trade: A multivariate GARCH-M approach," Journal of International Money and Finance, Elsevier, Elsevier, vol. 37(C), pages 282-305.
  9. Menkhoff, Lukas, 2012. "Foreign Exchange Intervention in Emerging Markets: A Survey of Empirical Studies," Hannover Economic Papers (HEP), Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät dp-498, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  10. Fatma Pinar Erdem & Erdal Ozmen, 2014. "Exchange Rate Regimes and Business Cycles: An Empirical Investigation," ERC Working Papers, ERC - Economic Research Center, Middle East Technical University 1404, ERC - Economic Research Center, Middle East Technical University, revised Jun 2014.

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