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Exits from Heavily Managed Exchange Rate Regimes

Author

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  • Ms. Enrica Detragiache
  • Mr. Eisuke Okada
  • Mr. 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.

Suggested Citation

  • Ms. Enrica Detragiache & Mr. Eisuke Okada & Mr. Ashoka Mody, 2005. "Exits from Heavily Managed Exchange Rate Regimes," IMF Working Papers 2005/039, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2005/039
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    References listed on IDEAS

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    Cited by:

    1. Ms. Dalia S Hakura, 2005. "Are Emerging Market Countries Learning to Float?," IMF Working Papers 2005/098, International Monetary Fund.
    2. Joshua Aizenman & Reuven Glick, 2008. "Pegged Exchange Rate Regimes-A Trap?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(4), pages 817-835, June.
    3. Ahmet Atil Asici, 2010. "Parametric and non-parametric approaches to exits from fixed exchange rate regimes," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 15(4), pages 381-406.
    4. International Monetary Fund, 2005. "Morocco: Selected Issues; Morocco: Selected Issues," IMF Staff Country Reports 05/419, International Monetary Fund.
    5. 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.
    6. 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., vol. 13(3), pages 219-246.
    7. Lucjan T. Orlowski, 2005. "Monetary Policy Adjustments on the Final Passage towards the Euro," CASE Network Studies and Analyses 0294, CASE-Center for Social and Economic Research.
    8. S bastien W lti, 2005. "The duration of fixed exchange rate regimes," Trinity Economics Papers 2000518, Trinity College Dublin, Department of Economics.
    9. Robert Lafrance, 2008. "China's Exchange Rate Policy: A Survey of the Literature," Discussion Papers 08-5, Bank of Canada.
    10. Terence Tai-Leung Chong & Qing He & Wing Hong Chan, 2016. "From Fixed to Float: A Competing Risks Analysis," International Economic Journal, Taylor & Francis Journals, vol. 30(4), pages 488-503, October.
    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. Post, Erik, 2007. "Macroeconomic imbalances and exchange rate regime shifts," Working Paper Series 2007:4, Uppsala University, Department of Economics.
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    14. Sean Barrett, 2005. "Risk Equalisation and Competition in the Irish Health Insurance Market," Trinity Economics Papers 200058, Trinity College Dublin, Department of Economics.

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