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Estimation of De Facto Exchange Rate Regimes: Synthesis of the Techniques for Inferring Flexibility and Basket Weights

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  • Jeffrey A. Frankel
  • Shang-Jin Wei

Abstract

The paper offers a new approach to estimate de facto exchange rate regimes, a synthesis of two techniques. One is a technique that the authors have used in the past to estimate implicit de facto weights when the hypothesis is a basket peg with little flexibility. The second is a technique used by others to estimate the de facto degree of exchange rate flexibility when the hypothesis is an anchor to the dollar or some other single major currency, but with a possibly-substantial degree of flexibility around that anchor. Since many currencies today follow variants of Band-Basket-Crawl, it is important to have available a technique that can cover both dimensions, inferring weights and inferring flexibility. We try out the technique on twenty-some currencies, over the period 1980-2007. Most are currencies that have officially used baskets as anchors for at least part of this sample period. But a few are known floaters or known simple peggers. In general the synthesis technique seems to work as it should.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14016.

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Date of creation: May 2008
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Handle: RePEc:nbr:nberwo:14016

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  1. Frankel, Jeffrey A. & Fajnzylber, Eduardo & Schmukler, Sergio L. & Serven, Luis, 2001. "Verifying exchange rate regimes," Journal of Development Economics, Elsevier, vol. 66(2), pages 351-386, December.
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Citations

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Cited by:
  1. Gaetano, D'Adamo, 2009. "Measuring exchange rate flexibility in Europe," MPRA Paper 26612, University Library of Munich, Germany.
  2. Frankel, Jeffrey & Xie, Daniel, 2010. "Estimation of De Facto Flexibility Parameter and Basket Weights in Evolving Exchange Rate Regimes," Working Paper Series rwp10-003, Harvard University, John F. Kennedy School of Government.
  3. Cruz Rodriguez, Alexis, 2009. "Choosing and assessing exchange rate regimes: A survey of the literature," MPRA Paper 16314, University Library of Munich, Germany.
  4. Marcel Fratzscher & Arnaud Mehl, 2011. "China's dominance hypothesis and the emergence of a tri-polar global currency system," Working Paper Series 1392, European Central Bank.
  5. Arslan Razmi, 2009. "Bretton Woods II and the Emerging Economies: Lazarus, Phoenix, or Humpty Dumpty?," Working Papers 2009-02, University of Massachusetts Amherst, Department of Economics.
  6. Jeffrey A. Frankel, 2009. "New Estimation Of China'S Exchange Rate Regime," Pacific Economic Review, Wiley Blackwell, vol. 14(3), pages 346-360, 08.
  7. Raphael Auer, 2011. "Exchange rate pass-through, domestic competition and inflation -- evidence from the 2005/08 revaluation of the Renminbi," Globalization and Monetary Policy Institute Working Paper 68, Federal Reserve Bank of Dallas.
  8. Slavi T. Slavov, 2011. "De Jure versus De Facto Exchange Rate Regimes in Sub-Saharan Africa," IMF Working Papers 11/198, International Monetary Fund.

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