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What is Learned from a Currency Crisis, Fear of Floating or Hollow Middle? Identifying Exchange Rate Policy in Recent Crisis Countries

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Author Info
Soyoung Kim () (Department of Economics, Korea University)

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Abstract

This paper develops a new methodology to infer the de facto exchange rate regime, based on a structural VAR model with sign restrictions. The methodology is applied to data from eleven emerging markets that recently experienced a currency crisis. The main findings are: (1) to be consistent with the “Hollow Middle?hypothesis, many countries moved toward hard pegs, such as dollarization and a currency board, or more flexible exchange rate arrangements that are close to the free float in the post-crisis period; and (2) the cases where a country over-states its exchange rate flexibility (including the case of “Fear of Floating? are found in all samples, but such cases tend to be less frequently found in the post-crisis period than in the pre-crisis period.

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Paper provided by Institute of Economic Research, Korea University in its series Discussion Paper Series with number 0712.

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Date of creation: 2007
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Handle: RePEc:iek:wpaper:0712

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Related research
Keywords: De Facto Exchange Rate Regime structural VAR Fear of Floating Hollow Middle Currency Crisis

Find related papers by JEL classification:
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
F31 - International Economics - - International Finance - - - Foreign Exchange
C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models

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  1. Kim, Soyoung & Lee, Jong-Wha & Shin, Kwanho, 2006. "Regional and Global Financial Integration in East Asia," MPRA Paper 695, University Library of Munich, Germany. [Downloadable!]
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