Advanced Search
MyIDEAS: Login to save this paper or follow this series

Exchange Rate Volatility Under Peg

Contents:

Author Info

  • Constant Lonkeng Ngouana

Abstract

This paper assesses the role of trade patterns in shaping the volatility of the effective exchange rate under two alternative peg regimes: a hard peg to a single currency and a peg to a basket of currencies. I link the changes in the nominal effective exchange rate of a pegged currency to the fluctuations of its anchor vis-a-vis other major currencies, with an emphasis on the dynamics of trade patterns. In an application to the WAEMU (West African Economic and Monetary Union), I find that the nominal effective exchange rate of the union was twice as volatile under the hard peg to the euro as it would have been under a hypothetical basket peg over the past decade. This result was driven by the substantial shifts that occurred in WAEMU trade patterns, away from euro area countries and toward the ?"BICs" (Brazil, India, and China). These findings suggest that policymakers should pay as much attention to the type of peg as to pegging in itself, with a particular focus on the dynamics of trade patterns.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=25769
Download Restriction: no

Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/73.

as in new window
Length: 21
Date of creation: 01 Mar 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/73

Contact details of provider:
Postal: International Monetary Fund, Washington, DC USA
Phone: (202) 623-7000
Fax: (202) 623-4661
Email:
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC

Order Information:
Web: http://www.imf.org/external/pubs/pubs/ord_info.htm

Related research

Keywords: Currency pegs; Exchange rates; West African Economic and Monetary Union; exchange rate; effective exchange rate; trade patterns; trading partners; nominal effective exchange rate; exchange rate regimes; exchange rate regime; exchange rate volatility; fixed exchange rate; monetary union; basket of currencies; flexible exchange rate; trade data; real effective exchange rate; exchange rate policies; bilateral exchange rate; effective exchange rates; trade share; fixed exchange rate countries; exchange rate developments; flexible exchange rate regimes; trade flows; trading partner; fixed exchange rate regime; exchange rate arrangements; currency baskets; external trade; fixed exchange rate regimes; exchange rate policy; open economies; partner countries; nominal exchange rate; regional trade; world demand; equilibrium model; changes in trade; domestic prices; real effective exchange rates; bilateral trade data; net exports; idiosyncratic shocks; trade partners; export trade; bilateral trade; bilateral exchange rates; per capita growth rate; intermediate goods; nominal exchange rates; exchange rate stability; intermediate inputs; nominal effective exchange rate indexes; foreign exchange; per capita income; global markets; alternative exchange rate; trade pattern; exchange rate flexibility; real exchange rate; exchange rate indexes; multilateral surveillance; balance of payments; exchange rate data; flexible exchange rate regime; exchange rate pass; monetary unions;

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Aghion, Philippe & Bacchetta, Philippe & Rancière, Romain & Rogoff, Kenneth, 2009. "Exchange rate volatility and productivity growth: The role of financial development," Journal of Monetary Economics, Elsevier, Elsevier, vol. 56(4), pages 494-513, May.
  2. Bagella, Michele & Becchetti, Leonardo & Hasan, Iftekhar, 2006. "Real effective exchange rate volatility and growth: A framework to measure advantages of flexibility vs. costs of volatility," Journal of Banking & Finance, Elsevier, Elsevier, vol. 30(4), pages 1149-1169, April.
  3. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear Of Floating," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(2), pages 379-408, May.
  4. Slavi T. Slavov, 2005. "Should small open economies in East Asia put all their eggs in one basket: the role of balance sheet effects," International Finance, EconWPA 0501001, EconWPA.
  5. Graham Bird & Ramkishen Rajan, 2002. "Optimal currency baskets and the third currency phenomenon: exchange rate policy in Southeast Asia," Journal of International Development, John Wiley & Sons, Ltd., vol. 14(8), pages 1053-1073.
  6. Margarida Duarte & Diego Restuccia & Andrea L. Waddle, 2007. "Exchange rates and business cycles across countries," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Win, pages 57-76.
  7. Aasim M. Husain & Ashoka Mody & Nienke Oomes & Robin Brooks & Kenneth Rogoff, 2003. "Evolution and Performance of Exchange Rate Regimes," IMF Working Papers 03/243, International Monetary Fund.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Daniel Agyapong & Anokye M. Adam, 2012. "Exchange Rate Behaviour: Implication for West African Monetary Zone," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 2(4), pages 215-228, October.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:12/73. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.