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From Fixed to Float

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  • Gilda Fernandez
  • Cem Karacadag
  • Rupa Duttagupta
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    Abstract

    This paper identifies the institutional and operational requisites for transitions to floating exchange rate regimes. In particular, it explores key issues underlying the transition, including developing a deep and liquid foreign exchange market, formulating intervention policies consistent with the new regime, establishing an alternative nominal anchor in the context of a new monetary policy framework, and building the capacity of market participants to manage exchange rate risks and of supervisory authorities to regulate and monitor them. It also assesses the factors that influence the pace of exit and the appropriate sequencing of exchange rate flexibility and capital account liberalization.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/126.

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    Length: 39
    Date of creation: 01 Jul 2004
    Date of revision:
    Handle: RePEc:imf:imfwpa:04/126

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    Related research

    Keywords: Intervention; Capital account liberalization; Flexible exchange rate policy; exchange rate; foreign exchange; inflation; exchange rate flexibility; foreign exchange market; monetary policy; inflation targeting; exchange rate risk; foreign currency; flexible exchange rate; exchange rate regime; exchange rate regimes; exchange rate volatility; inflation target; exchange rate risks; exchange rate movements; price stability; exchange markets; exchange rates; exchange rate level; foreign exchange markets; flexible exchange rate regimes; flexible exchange rate regime; exchange operations; foreign exchange operations; exchange risk; inflationary expectations; foreign exchange risk; fixed exchange rate; exchange rate band; floating exchange rate; exchange rate changes; inflation targeting framework; exchange rate policy; currency risk; inflationary pressures; floating exchange rate regime; exchange market activity; exchange controls; basket of currencies; exchange rate misalignments; foreign exchange reserves; foreign exchange transactions; nominal exchange rate; exchange rate levels; fixed exchange rate regime; effective exchange rates; high inflation; exchange reserves; daily exchange rate; exchange rate bands; exchange rate variability; exchange rate misalignment; rigid exchange rate regimes; terms of trade; exchange transactions; exchange rate guarantee; inflation rate; aggregate demand; exchange market intervention; flexible exchange rates; intermediate exchange rate regimes; monetary base; exchange rate regime classification; exchange arrangements; exchange rate targeting; exchange risk management; forecasting inflation; real exchange rate overvaluation; limited exchange rate flexibility; exchange options; exchange rate target; exchange rate rigidity; terms of trade shocks; foreign exchange rates; inflation objective; low inflation; floating exchange rate regimes; real exchange rate; exchange rate path; explicit exchange rate; currency substitution; market exchange rates; exchange rate policies; exchange control; exchange rate overvaluation; equilibrium exchange rate; real effective exchange rates; floating exchange rates; foreign exchange risk management; exchange rate depreciation; exchange rate float; real interest rates; de facto exchange rate regime; implicit exchange rate guarantee; exchange rate anchor; exchange rate pass; undervalued exchange rate; stable exchange rates; rate of inflation; intermediate exchange rate;

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    References

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    12. Ales Bulir, 2004. "Liberalized Markets Have More Stable Exchange Rates," IMF Working Papers 04/35, International Monetary Fund.
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    16. Asici, Ahmet & Wyplosz, Charles, 2003. "The Art of Gracefully Exiting a Peg," MPRA Paper 4432, University Library of Munich, Germany.
    17. Beine, Michel & Benassy-Quere, Agnes & Lecourt, Christelle, 2002. "Central bank intervention and foreign exchange rates: new evidence from FIGARCH estimations," Journal of International Money and Finance, Elsevier, Elsevier, vol. 21(1), pages 115-144, February.
    18. Andrea Bubula & Inci Ötker, 2003. "Are Pegged and Intermediate Regimes More Crisis Prone?," IMF Working Papers 03/223, International Monetary Fund.
    19. Corrinne Ho & Robert N. McCauley, 2003. "Living with flexible exchange rates: issues and recent experience in inflation targeting emerging market economies," BIS Working Papers 130, Bank for International Settlements.
    20. M. Nowak & Ketil Hviding & Luca Antonio Ricci, 2004. "Can Higher Reserves Help Reduce Exchange Rate Volatility?," IMF Working Papers 04/189, International Monetary Fund.
    21. Schmidt-Hebbel, Klaus & Tapia, Matias, 2002. "Inflation targeting in Chile," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 13(2), pages 125-146, August.
    22. G. Russell Kincaid & Martin Fetherston & Peter Isard & Hamid Faruqee, 2001. "Methodology for Current Account and Exchange Rate Assessments," IMF Occasional Papers 209, International Monetary Fund.
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    24. Guy Debelle, 2001. "The Case for Inflation Targeting in East Asian Countries," RBA Annual Conference Volume, Reserve Bank of Australia, in: David Gruen & John Simon (ed.), Future Directions for Monetary Policies in East Asia Reserve Bank of Australia.
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    Citations

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    Cited by:
    1. Ahmet Atil Asici & Nadezhda Ivanova & Charles Wyplosz, 2008. "How to exit from fixed exchange rate regimes?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 13(3), pages 219-246.
    2. M. Frömmel, 2007. "Volatility Regimes in Central and Eastern European Countries’ Exchange Rates," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium, Ghent University, Faculty of Economics and Business Administration 07/487, Ghent University, Faculty of Economics and Business Administration.
    3. Sanusi, Aliyu Rafindadi, 2010. "Lessons from the foreign exchange market reforms in Ghana: 1983-2006," MPRA Paper 29502, University Library of Munich, Germany.
    4. Bersch, Julia & Klüh, Ulrich H., 2007. "When countries do not do what they say: Systematic discrepancies between exchange rate regime announcements and de facto policies," Discussion Papers in Economics, University of Munich, Department of Economics 2072, University of Munich, Department of Economics.
    5. Jorge Canales-Kriljenko & Turgut Kisinbay & Rodolfo Maino & Eric Parrado, 2006. "Setting the Operational Framework for Producing Inflation Forecasts," Working Papers Central Bank of Chile, Central Bank of Chile 362, Central Bank of Chile.
    6. Valérie Mignon & Amina Lahrèche-Révil & Agnès Bénassy-Quéré, 2004. "Le yuan et le G20," Revue d'Économie Financière, Programme National Persée, Programme National Persée, vol. 77(4), pages 127-146.
    7. Thomson Fontaine, 2005. "Currency Crises in Developed and Emerging Market Economies," IMF Working Papers 05/13, International Monetary Fund.
    8. Barry Eichengreen, 2009. "From the Asian crisis to the global credit crisis: reforming the international financial architecture redux," International Economics and Economic Policy, Springer, Springer, vol. 6(1), pages 1-22, June.

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