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To Peg or Not to Peg

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  • Aasim M. Husain
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    Abstract

    This paper proposes a template for assessing whether or not a country''s economic and financial characteristics make it an appropriate candidate for a pegged exchange rate regime. The template employs quantifiable measures of attributes-trade orientation, financial integration, economic diversification, macroeconomic stabilization, credibility, and "fear-offloating" type effects-that have been identified in the literature as key potential determinants of regime choice. To illustrate, the template is applied to Kazakhstan and Pakistan. The results indicate a fairly strong case against a pegged regime in Pakistan. The implications for Kazakhstan are mixed, although changes in that economy in recent years strengthen the case against a peg.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/54.

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    Length: 29
    Date of creation: 01 Feb 2006
    Date of revision:
    Handle: RePEc:imf:imfwpa:06/54

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    Related research

    Keywords: Exchange rate regimes; Currency pegs; exchange rate; exchange rate regime; terms of trade; trade flows; exchange rate flexibility; exchange rate changes; trading partner; commodity prices; economic integration; exchange rates; fixed exchange rate; exchange rate policy; balance of payments; exchange rate pass; aggregate demand; international trade; transactions costs; world price; trade gains; trade shocks; trade pattern; exchange rate variability; terms of trade shocks; currency areas; exchange rate shocks; trade partner; global markets; exchange rate system; effective exchange rate; world economy; fixed exchange rate regime; exchange rate stability; exchange rate peg; history of exchange rate; export price; nominal exchange rate; trading patterns; nominal exchange rate stability; domestic prices; oil imports; exchange arrangements; nominal effective exchange rate; foreign ownership; flexible exchange rate; international standards; stable exchange rate; external shocks; domestic price; external trade; exchange rate regime durability; foreign exchange; trade shock; world prices; potential trade gains; rigid exchange rate regimes; commodity exporters; low trade; exchange rate arrangements; import side; fixed exchange rates; export diversification; balance of payments crisis; de facto exchange rate regime;

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    References

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    1. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
    2. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
    3. Robin Brooks & Kenneth Rogoff & Ashoka Mody & Nienke Oomes & Aasim M. Husain, 2004. "Evolution and Performance of Exchange Rate Regimes," IMF Occasional Papers 229, International Monetary Fund.
    4. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR & CES & MSH, vol. 15(30), pages 7-46, 04.
    5. Paolo Mauro & Grace Juhn, 2002. "Long-Run Determinants of Exchange Rate Regimes," IMF Working Papers 02/104, International Monetary Fund.
    6. Peter Montiel & Bijan B. Aghevli & Mohsin S. Khan, 1991. "Exchange Rate Policy in Developing Countries," IMF Occasional Papers 78, International Monetary Fund.
    7. repec:rus:hseeco:181565 is not listed on IDEAS
    8. Sebastian Edwards, 1999. "The Choice of Exchange Rate Regime in Developing and Middle Income Countries," NBER Chapters, in: Changes in Exchange Rates in Rapidly Developing Countries: Theory, Practice, and Policy Issues (NBER-EASE volume 7), pages 9-28 National Bureau of Economic Research, Inc.
    9. Frankel, Jeffrey, 2003. "A Proposed Monetary Regime for Small Commodity Exporters: Peg the Export Price ('PEP')," International Finance, Wiley Blackwell, vol. 6(1), pages 61-88, Spring.
    10. Barry J. Eichengreen & Inci Ötker & A. Javier Hamann & Esteban Jadresic & R. B. Johnston & Hugh Bredenkamp & Paul R. Masson, 1998. "Exit Strategies," IMF Occasional Papers 168, International Monetary Fund.
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    Cited by:
    1. Bonpasse, Morrison, 2009. "The single global currency - common cents for the world (2008 Edition)," MPRA Paper 14756, University Library of Munich, Germany.
    2. Bonpasse, Morrison, 2007. "The Single Global Currency - Common Cents for the World (2007 Edition)," MPRA Paper 5879, University Library of Munich, Germany.
    3. Bonpasse, Morrison, 2006. "The Single Global Currency: Common Cents for the World," MPRA Paper 1175, University Library of Munich, Germany.
    4. Mark Lewis & Aurélie Martin & Gabriel Di Bella, 2007. "Assessing Competitiveness and Real Exchange Rate Misalignment in Low-Income Countries," IMF Working Papers 07/201, International Monetary Fund.

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