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The Survival of Intermediate Exchange Rate Regimes

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Author Info
Agnes Benassy-Quere
Benoit Cœure

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Abstract

We propose a model of exchange-rate regime choice which accounts for the existence of a continuous range of regimes, the need for real exchange-rate adjustment in response to shocks, the existence of capital account shocks and of balance-sheet effects, the sensitivity of prices to the nominal exchange rate, and the need for a commitment to make any given regime sustainable. Non-ordered Logit estimations on a cross-section sample of 126 emerging and developed countries before and after 1997-1998 currency crises broadly support our approach.. Specifically, we find that there is still a case for intermediate regimes in countries where the interest rate channel is weaker and which do not depend too much on commodities. The empirical model correctly predicts up to 83% of observed exchange rate regimes, and the recent "hollowing out" of intermediate regimes. It also provides a benchmark to assess the recent changes in individual exchange rate regimes.

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Paper provided by CEPII research center in its series Working Papers with number 2002-07.

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Date of creation: Jul 2002
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Handle: RePEc:cii:cepidt:2002-07

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Keywords: Exchange rate regime Developing countries Logit model

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F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hanen Gharbi,, 2005. "La gestion des taux de change dans les pays émergents: la leçon des expériences récentes," Documents de Travail de l'OFCE 2005-06, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
  2. Post, Erik, 2007. "Macroeconomic imbalances and exchange rate regime shifts," Working Paper Series 2007:4, Uppsala University, Department of Economics. [Downloadable!]
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