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The exchange rate regime in Asia : From Crisis to Crisis

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Author Info

  • Ila Patnaik

    (National Institute of Public Finance and Policy)

  • Ajay Shah
  • Anmol Sethy
  • Vimal Balasubramaniam

Abstract

Prior to the Asian financial crisis, most Asian exchange rates were de facto pegged to the US Dollar. In 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 by this measure Asia has been slowly moving away from a Bretton Woods II arrangement.

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Bibliographic Info

Paper provided by East Asian Bureau of Economic Research in its series Finance Working Papers with number 21852.

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Date of creation: Jan 2010
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Handle: RePEc:eab:financ:21852

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Keywords: exchange rate regime; Asia; Bretton Woods II hypothesis;

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References

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  1. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2004. "Financial Globalization and Exchange Rates," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4745, C.E.P.R. Discussion Papers.
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  7. Benassy-Quere, Agnes & Coeure, Benoit & Mignon, Valerie, 2006. "On the identification of de facto currency pegs," Journal of the Japanese and International Economies, Elsevier, Elsevier, vol. 20(1), pages 112-127, March.
  8. BAI, Jushan & PERRON, Pierre, 1998. "Computation and Analysis of Multiple Structural-Change Models," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 9807, Universite de Montreal, Departement de sciences economiques.
  9. Sebastian Edwards, 2001. "Exchange Rate Regimes, Capital Flows and Crisis Prevention," NBER Working Papers, National Bureau of Economic Research, Inc 8529, National Bureau of Economic Research, Inc.
  10. Zeileis, Achim & Shah, Ajay & Patnaik, Ila, 2010. "Testing, monitoring, and dating structural changes in exchange rate regimes," Computational Statistics & Data Analysis, Elsevier, Elsevier, vol. 54(6), pages 1696-1706, June.
  11. Shin-ichi Fukuda, 2002. "Post-crisis Exchange Rate Regimes in East Asia," CIRJE F-Series, CIRJE, Faculty of Economics, University of Tokyo CIRJE-F-181, CIRJE, Faculty of Economics, University of Tokyo.
  12. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange Rates and Financial Fragility," NBER Working Papers, National Bureau of Economic Research, Inc 7418, National Bureau of Economic Research, Inc.
  13. Annamaria Kokenyne & Romain Veyrune & Karl Friedrich Habermeier & Harald Anderson, 2009. "Revised System for the Classification of Exchange Rate Arrangements," IMF Working Papers, International Monetary Fund 09/211, International Monetary Fund.
  14. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2003. "An Essay on the Revived Bretton Woods System," NBER Working Papers, National Bureau of Economic Research, Inc 9971, National Bureau of Economic Research, Inc.
  15. Ricardo Hausmann & Michael Gavin & Carmen Pagés-Serra & Ernesto H. Stein, 1999. "Financial Turmoil and Choice of Exchange Rate Regime," Research Department Publications, Inter-American Development Bank, Research Department 4170, Inter-American Development Bank, Research Department.
  16. Dani Rodrik, 2008. "The Real Exchange Rate and Economic Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 365-439.
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Citations

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Cited by:
  1. Balasubramaniam, Vimal & Patnaik, Ila & Shah, Ajay, 2011. "Who cares about the Chinese Yuan?," Working Papers, National Institute of Public Finance and Policy 11/89, National Institute of Public Finance and Policy.
  2. Jin, Hailong & Choi, E. Kwan, 2013. "Profits and losses from currency intervention," International Review of Economics & Finance, Elsevier, Elsevier, vol. 27(C), pages 14-20.
  3. Ila Patnaik & Ajay Shah, 2011. "India's Financial Globalisation," IMF Working Papers, International Monetary Fund 11/7, International Monetary Fund.
  4. repec:pra:mprapa:39771 is not listed on IDEAS
  5. Ila Patnaik & Ajay Shah, 2012. "Did the Indian Capital Controls Work as a Tool of Macroeconomic Policy?," IMF Economic Review, Palgrave Macmillan, Palgrave Macmillan, vol. 60(3), pages 439-464, September.
  6. Aizenman, Joshua & Sengupta, Rajeswari, 2012. "The Financial Trilemma in China and a Comparative Analysis with India," Santa Cruz Department of Economics, Working Paper Series, Department of Economics, UC Santa Cruz qt2xn3238g, Department of Economics, UC Santa Cruz.
  7. Bhattacharya, Rudrani & Patnaik,Ila, 2014. "Monetary policy analysis in an inflation targeting framework in emerging economies: The case of India," Working Papers, National Institute of Public Finance and Policy 14/131, National Institute of Public Finance and Policy.
  8. Tsen, Wong Hock, 2011. "The real exchange rate determination: An empirical investigation," International Review of Economics & Finance, Elsevier, Elsevier, vol. 20(4), pages 800-811, October.
  9. Sen Gupta, Abhijit & Sengupta, Rajeswari, 2013. "Management of Capital Flows in India: 1990-2011," MPRA Paper, University Library of Munich, Germany 46217, University Library of Munich, Germany.
  10. Moore, Tomoe & Wang, Ping, 2014. "Dynamic linkage between real exchange rates and stock prices: Evidence from developed and emerging Asian markets," International Review of Economics & Finance, Elsevier, Elsevier, vol. 29(C), pages 1-11.
  11. Yeh, Kuo-chun, 2012. "Renminbi in the future international monetary system," International Review of Economics & Finance, Elsevier, Elsevier, vol. 21(1), pages 106-114.
  12. Ibragimov, Marat & Ibragimov, Rustam & Kattuman, Paul, 2013. "Emerging markets and heavy tails," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(7), pages 2546-2559.
  13. 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, Elsevier, vol. 32(C), pages 1044-1078.
  14. Jin, Hailong & Choi, E Kwan, 2013. "Profits and Losses from Currency Intervention," Staff General Research Papers, Iowa State University, Department of Economics 37378, Iowa State University, Department of Economics.
  15. Bonatti, Luigi & Fracasso, Andrea, 2014. "Modeling the Transition Towards Renminbi's Full Convertibility: Implications for China’s Growth," MPRA Paper, University Library of Munich, Germany 54129, University Library of Munich, Germany.
  16. 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, Elsevier, vol. 20(3), pages 441-451, June.

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