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The exchange rate regime in Asia: From crisis to crisis

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  • Patnaik, Ila
  • Shah, Ajay
  • Sethy, Anmol
  • Balasubramaniam, Vimal

Abstract

Prior to the Asian financial crisis, most Asian exchange rates were de facto pegged to the US Dollar. During the crisis, many economies experienced a brief period of extreme flexibility. A [`]fear of floating' gave reduced flexibility when the crisis subsided, but flexibility after the crisis was greater than that seen prior to the crisis. Contrary to the idea of a durable Bretton Woods II arrangement, Asia then went on to slowly raise flexibility and reduce the role for the US dollar. When the period from April 2008 to December 2009 is compared against periods of high inflexibility, from January 1991 to November 1991 and October 1995 to March 1997, the increase in flexibility is economically and statistically significant. This paper proposes a new measure of dollar pegging, the "Bretton Woods II Score". We find that Asia has been slowly moving away from a Bretton Woods II arrangement.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 20 (2011)
Issue (Month): 1 (January)
Pages: 32-43

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Handle: RePEc:eee:reveco:v:20:y:2011:i:1:p:32-43

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Web page: http://www.elsevier.com/locate/inca/620165

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Keywords: Exchange rate regime Asia Bretton Woods II hypothesis;

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  1. Michael Woodford, 2009. "Is an Undervalued Currency the Key to Economic Growth?," Discussion Papers 0809-13, Columbia University, Department of Economics.
  2. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  3. Benassy-Quere, Agnes & Coeure, Benoit & Mignon, Valerie, 2006. "On the identification of de facto currency pegs," Journal of the Japanese and International Economies, Elsevier, vol. 20(1), pages 112-127, March.
  4. Ajay Shah & Ila Patnaik, 2009. "Does the Currency Regime Shape Unhedged Currency Exposure?," Working Papers id:2049, eSocialSciences.
  5. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2003. "An Essay on the Revived Bretton Woods System," NBER Working Papers 9971, National Bureau of Economic Research, Inc.
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  7. Frankel, Jeffrey A & Wei, Shang-Jin, 2007. "Assessing China’s Exchange Rate Regime," CEPR Discussion Papers 6264, C.E.P.R. Discussion Papers.
  8. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange rates and financial fragility," Proceedings, Federal Reserve Bank of Kansas City, pages 329-368.
  9. Gian-Maria Milesi-Ferretti & Philip R. Lane, 2005. "Financial Globalization and Exchange Rates," IMF Working Papers 05/3, International Monetary Fund.
  10. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
  11. Annamaria Kokenyne & Romain Veyrune & Karl Friedrich Habermeier & Harald Anderson, 2009. "Revised System for the Classification of Exchange Rate Arrangements," IMF Working Papers 09/211, International Monetary Fund.
  12. Shin-ichi Fukuda, 2002. "Post-crisis Exchange Rate Regimes in East Asia," CIRJE F-Series CIRJE-F-181, CIRJE, Faculty of Economics, University of Tokyo.
  13. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
  14. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
  15. Zeileis, Achim & Shah, Ajay & Patnaik, Ila, 2010. "Testing, monitoring, and dating structural changes in exchange rate regimes," Computational Statistics & Data Analysis, Elsevier, vol. 54(6), pages 1696-1706, June.
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Cited by:
  1. Tsen, Wong Hock, 2011. "The real exchange rate determination: An empirical investigation," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 800-811, October.
  2. Bonatti, Luigi & Fracasso, Andrea, 2013. "Hoarding of international reserves in China: Mercantilism, domestic consumption and US monetary policy," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 1044-1078.
  3. Shah, Ajay & Patnaik, Ila, 2011. "India's financial globalisation," Working Papers 11/79, National Institute of Public Finance and Policy.
  4. Aizenman, Joshua & Sengupta, Rajeswari, 2012. "The Financial Trilemma in China and a Comparative Analysis with India," Santa Cruz Department of Economics, Working Paper Series qt2xn3238g, Department of Economics, UC Santa Cruz.
  5. Lee, Hei Wai & Xie, Yan Alice & Yau, Jot, 2011. "The impact of sovereign risk on bond duration: Evidence from Asian sovereign bond markets," International Review of Economics & Finance, Elsevier, vol. 20(3), pages 441-451, June.
  6. Balasubramaniam, Vimal & Patnaik, Ila & Shah, Ajay, 2011. "Who cares about the Chinese Yuan?," Working Papers 11/89, National Institute of Public Finance and Policy.
  7. repec:pra:mprapa:39771 is not listed on IDEAS

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