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Exits From Heavily Managed Exchange Rate Regimes

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Author Info

  • Enrica Detragiache
  • Eisuke Okada
  • Ashoka Mody

Abstract

A widely held nostrum is that countries should exit heavily managed exchange rate regimes when the going is good, rather than when the exchange rate is under pressure to depreciate. Have countries followed this advice in practice? And, if so, how good has the going been? We find that in the past 25 years or so, almost all exits to more flexible regimes were followed by a depreciation of the exchange rate, and that exits were about evenly divided between disorderly and orderly cases. A logit econometric model, indicates that the general circumstances of orderly and disorderly exits have been broadly similar: an overvalued real exchange rate, falling reserves, a difficult fiscal position, and high world interest rates. Wellestablished pegs were less likely to end.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/39.

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Length: 24
Date of creation: 01 Feb 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/39

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Related research

Keywords: Exchange rates; Exchange rate regimes; Economic models; exchange rate; real exchange rate; international financial statistics; exchange rate regime; money market rate; money market; nominal exchange rate; exchange rate flexibility; real money market rate; flexible exchange rate; flexible exchange rate regimes; overvaluation; foreign exchange; exchange rate classification; effective exchange rate; real effective exchange rate; exchange rate appreciation; exchange rate overvaluation; real exchange rate appreciation; natural exchange rate; exchange rate arrangements; exchange restrictions; multiple exchange rates; official exchange rate; financial institutions; history of exchange rate; foreign exchange markets; exchange rate pegs; international interest rates; exchange rate bands; exchange rate regime durability; exchange rate policy; limited exchange rate flexibility; exchange markets; exchange arrangements; financial sector; currency crisis; exchange reserves; foreign exchange reserves; currency regime; nominal devaluations; flexible exchange rate regime; foreign exchange market; currency depreciation;

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References

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  1. 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.
  2. Klein, Michael W. & Marion, Nancy P., 1997. "Explaining the duration of exchange-rate pegs," Journal of Development Economics, Elsevier, vol. 54(2), pages 387-404, December.
  3. Asici, Ahmet & Wyplosz, Charles, 2003. "The Art of Gracefully Exiting a Peg," MPRA Paper 4432, University Library of Munich, Germany.
  4. Inci Ötker & Rupa Duttagupta, 2003. "Exits From Pegged Regimes," IMF Working Papers 03/147, International Monetary Fund.
  5. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-55, December.
  6. Pierre-Richard Agenor, 2004. "Orderly exits from adjustable pegs and exchange rate bands," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 7(2), pages 83-108.
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Citations

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Cited by:
  1. Lin, Shu & Ye, Haichun, 2011. "The role of financial development in exchange rate regime choices," Journal of International Money and Finance, Elsevier, vol. 30(4), pages 641-659, June.
  2. Ahmed Atil Asici, 2008. "Parametric and Non-Parametric Approaches to Exits from Fixed Exchange Rate Regimes," Working Papers 401, Economic Research Forum, revised May 2008.
  3. Sébastien Wälti, 2005. "The duration of fixed exchange rate regimes," The Institute for International Integration Studies Discussion Paper Series iiisdp96, IIIS.
  4. Joshua Aizenman & Reuven Glick, 2005. "Pegged Exchange Rate Regimes -- A Trap?," NBER Working Papers 11652, National Bureau of Economic Research, Inc.
  5. Dalia Hakura, 2005. "Are Emerging Market Countries Learning to Float?," IMF Working Papers 05/98, International Monetary Fund.
  6. Sean Barrett, 2005. "Risk Equalisation and Competition in the Irish Health Insurance Market," Trinity Economics Papers 200058, Trinity College Dublin, Department of Economics.
  7. Ahmet Asici; Nadezhda Ivanova; Charles Wyplosz, 2005. "How to Exit From Fixed Exchange Rate Regimes?," IHEID Working Papers 03-2005, Economics Section, The Graduate Institute of International Studies.
  8. Lucjan T Orlowski, 2005. "Monetary Policy Adjustments on the Final Passage towards the Euro," Macroeconomics 0503022, EconWPA.
  9. Aizenman, Joshua & Glick, Reuven, 2005. "Pegged Exchange Rate Regimes – A Trap?," Santa Cruz Department of Economics, Working Paper Series qt92n6v1rm, Department of Economics, UC Santa Cruz.
  10. Post, Erik, 2007. "Macroeconomic imbalances and exchange rate regime shifts," Working Paper Series 2007:4, Uppsala University, Department of Economics.
  11. Tamgac, Unay, 2013. "Duration of fixed exchange rate regimes in emerging economies," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 439-467.
  12. Robert Lafrance, 2008. "China's Exchange Rate Policy: A Survey of the Literature," Discussion Papers 08-5, Bank of Canada.
  13. repec:tcd:wpaper:tep8 is not listed on IDEAS

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