Exchange-Rate Regimes: "Does What Countries Say Matter?"
AbstractTraditionally the IMF's Annual Report on Exchange Arrangements and Exchange Restrictions has been the main source of information about the exchange-rate policies pursued by member countries. The classification contained therein has been used to document the evolution of exchange rate regimes over time as well as to study the relationship between economic performance and the choice of exchange rate system. Recently a number of authors have challenged the results of these studies on the grounds that countries may not always be following the exchange rate policy that they have announced. For example, many countries appear to have a 'fear of floating' in the sense that the evolution of their exchange rate corresponds to what one would expect to see in a fixed exchange rate country even though they are officially following a floating rate policy. New classifications have been created claiming to represent countries' actual exchange rate policy as opposed to their declared policy. Using the new classification many results relating to the evolution of exchange rate regimes and the economic consequences of exchange-rate regime choices have been overturned. It is sometimes claimed that the new so-called de facto classifications are superior to the older de jure classifications. In this paper we argue that neither the officially declared exchange rate regime nor the de facto regime tells the full story about exchange rate policy. Both contain useful information and need to be taken into account. In addition we argue that countries which claim to be floating but in fact have relatively stable exchange rates are not necessarily breaking any commitment as sometimes has been suggested. Exchange rate stability may be the result of optimally chosen monetary policies. Furthermore, countries that use monetary policy instruments actively to stabilize their exchange rate may rationally not want to announce and commit to a fixed exchange rate because of a fear of being subject to speculative attacks. We present some empirical evidence consistent with this interpretation.
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Bibliographic InfoPaper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 07-2004.
Date of creation: Jun 2004
Date of revision:
International Economics; Exchange Rates; Trade; Whatever Related;
Other versions of this item:
- Hans Genberg & Alexander K. Swoboda, 2005. "Exchange Rate Regimes: Does What Countries Say Matter?," IMF Staff Papers, Palgrave Macmillan, vol. 52(si), pages 8.
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-09-30 (All new papers)
- NEP-CBA-2004-09-30 (Central Banking)
- NEP-IFN-2004-09-30 (International Finance)
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- repec:eso:journl:v:34:y:2003:i:3:p:211-228 is not listed on IDEAS
- Asici, Ahmet & Wyplosz, Charles, 2003. "The Art of Gracefully Exiting a Peg," MPRA Paper 4432, University Library of Munich, Germany.
- Reinhart, Carmen & Calvo, Guillermo, 2002.
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14000, University Library of Munich, Germany.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2002.
"The Modern History of Exchange Rate Arrangements: A Reinterpretation,"
NBER Working Papers
8963, National Bureau of Economic Research, Inc.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 1-48, February.
- Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
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