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Are Pegged and Intermediate Regimes More Crisis Prone?

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  • Andrea Bubula
  • Inci Ötker

Abstract

This paper provides evidence on the susceptibility of different types of exchange rate regimes to currency crises during 1990-2001. It explores the incidence of crises, identified as episodes of severe exchange market pressure, to seek evidence on whether pegged regimes are more crisis prone than floating regimes and on whether certain types of pegged regimes are more crisis prone than others. The paper finds that pegged regimes, as a whole, have been characterized by a higher incidence of crises than floating regimes, for countries that are more integrated with international capital markets; and that intermediate regimes (mainly soft pegs and tightly-managed floating regimes) have been more crisis prone than both hard pegs and other floating regimes-a view consistent with the bipolar view of exchange rate regimes. The degree of crisis proneness seems to be broadly similar across different types of intermediate regimes.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/223.

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Length: 36
Date of creation: 01 Nov 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/223

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Keywords: Exchange rate regimes; Floating exchange rates; Currency pegs; exchange rate; intermediate regimes; exchange rates; exchange rate regime; capital markets; exchange rate depreciation; international capital markets; currency boards; capital mobility; speculative attacks; currency unions; foreign exchange; currency basket; alternative exchange rate; nominal exchange rate; alternative exchange rate regimes; exchange rate unification; international capital; prevailing exchange rate; exchange rate policy; intermediate exchange rate; de facto exchange rate regimes; foreign exchange market; exchange rate movements; intermediate exchange rate regimes; nominal exchange rates; exchange rate policies; exchange rate arrangements; nominal bilateral exchange rates; exchange market intervention; de facto exchange rate regime; exchange controls; short-term capital inflows; exchange rate depreciations; exchange rate pegs; exchange rate changes; discount rates; movements in exchange rates; bilateral exchange rates; exchange rate path; classification of exchange rate; capital controls; capital inflows; capital market; currency devaluation; history of exchange rate; bilateral exchange rate; fixed exchange rate regime; real exchange rates; market exchange rates; nominal bilateral exchange rate; exchange rate stability; exchange arrangements; exchange rate behavior; exchange rate peg; dual exchange rates; capital market integration; exchange rate regime classifications; exchange rate flexibility; fixed exchange rates; fixed exchange rate; currency depreciation; foreign exchange markets; stock market; capital flows; exchange rate data; exchange markets; rigid exchange rate regimes;

References

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  1. Reuven Glick & Michael Hutchison, 1999. "Banking and currency crises; how common are twins?," Proceedings, Federal Reserve Bank of San Francisco, issue Sep.
  2. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 73-96, Fall.
  3. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
  4. Atish R. Ghosh & Anne-Marie Gulde & Jonathan D. Ostry & Holger C. Wolf, 1997. "Does the Nominal Exchange Rate Regime Matter?," NBER Working Papers 5874, National Bureau of Economic Research, Inc.
  5. Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc.
  6. 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.
  7. Michael Dueker & Andreas Fischer, 2001. "The Mechanics of a successful Exchange-Rate Peg: Lessons from Emerging Markets," Working Papers 01.02, Swiss National Bank, Study Center Gerzensee.
  8. Graciela Kaminsky & Saul Lizondo & Carmen M. Reinhart, 1998. "Leading Indicators of Currency Crises," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 1-48, March.
  9. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
  10. Hali J. Edison, 2003. "Do indicators of financial crises work? An evaluation of an early warning system," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(1), pages 11-53.
  11. Ranil Salgado & Luca Antonio Ricci & Francesco Caramazza, 2000. "Trade and Financial Contagion in Currency Crises," IMF Working Papers 00/55, International Monetary Fund.
  12. Michael W. Klein & Nancy P. Marion, 1994. "Explaining the Duration of Exchange-Rate Pegs," NBER Working Papers 4651, National Bureau of Economic Research, Inc.
  13. Atish R. Ghosh & Anne-Marie Gulde & Holger C. Wolf, 2003. "Exchange Rate Regimes: Choices and Consequences," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262072408, December.
  14. Reuven Glick & Ramon Moreno, 1999. "Money and credit, competitiveness, and currency crises in Asia and Latin America," Pacific Basin Working Paper Series 99-01, Federal Reserve Bank of San Francisco.
  15. Paul R. Masson, 2000. "Exchange Rate Regime Transitions," IMF Working Papers 00/134, International Monetary Fund.
  16. Inci Ötker & Rupa Duttagupta, 2003. "Exits From Pegged Regimes," IMF Working Papers 03/147, International Monetary Fund.
  17. Schuler, Kurt, 1999. "The Problem with Pegged Exchange Rates," Kyklos, Wiley Blackwell, vol. 52(1), pages 83-102.
  18. Ramon Moreno, 1998. "Was there a boom in money and credit prior to East Asia's recent currency crisis?," Pacific Basin Working Paper Series 98-05, Federal Reserve Bank of San Francisco.
  19. Barry Eichengreen., 1993. "International Monetary Arrangements for the 21st Century," Center for International and Development Economics Research (CIDER) Working Papers C93-021, University of California at Berkeley.
  20. Morris Goldstein (ed.), 1999. "Safeguarding Prosperity in a Global Financial System: The Future International Financial Architecture," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 50.
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