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Exchange Rate Regimes and Capital Mobility: How Much of the Swoboda Thesis Survives?

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  • Barry Eichengreen

Abstract

Alexander Swoboda is one of the originators of the bipolar view that capital mobility creates pressure for countries to abandon intermediate exchange rate arrangements in favor of greater flexibility and harder pegs. This paper takes another look at the evidence for this hypothesis using two popular de facto classifications of exchange rate regimes. That evidence supports the bipolar view for the advanced countries, the sample for which it was originally developed, but not obviously for emerging markets and other developing countries. One interpretation of the contrast is that there is a tendency to move away from intermediate regimes in the course of economic and financial development, implying that emerging markets and other developing countries will eventually abandon intermediate regimes as well. Another interpretation is that the advanced countries have been faster to abandon soft pegs because they have been faster to develop attractive alternatives, notably Europe's monetary union. In this view, other countries are unlikely to abandon soft pegs because of the absence of the distinctive political conditions that have made the European alternative feasible. A final interpretation is that the advanced countries have been able to abandon soft peg because of their success in substituting inflation targeting for exchange rate targeting as the anchor for monetary policy. The paper presents some evidence for this view, which suggests the feasibility of further movement by emerging markets and developing countries in the direct of greater exchange rate flexibility.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14100.

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Date of creation: Jun 2008
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Handle: RePEc:nbr:nberwo:14100

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  1. Carmen M. Reinhart & Kenneth S. Rogoff, 2002. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," NBER Working Papers 8963, National Bureau of Economic Research, Inc.
  2. Alberto Alesina & Alexander F. Wagner, 2006. "Choosing (and Reneging on) Exchange Rate Regimes," Journal of the European Economic Association, MIT Press, MIT Press, vol. 4(4), pages 770-799, 06.
  3. Masson, Paul R., 2001. "Exchange rate regime transitions," Journal of Development Economics, Elsevier, Elsevier, vol. 64(2), pages 571-586, April.
  4. Barry Eichengreen & Alan M. Taylor, 2003. "The Monetary Consequences of a Free Trade Area of the Americas," NBER Working Papers 9666, National Bureau of Economic Research, Inc.
  5. Andrea Bubula & Inci Ötker, 2002. "The Evolution of Exchange Rate Regimes Since 1990," IMF Working Papers 02/155, International Monetary Fund.
  6. Eduardo Levy-Yeyati & Federico Sturzenegger, 2003. "To Float or to Fix: Evidence on the Impact of Exchange Rate Regimes on Growth," American Economic Review, American Economic Association, American Economic Association, vol. 93(4), pages 1173-1193, September.
  7. Atish R. Ghosh & Anne-Marie Gulde & Holger C. Wolf, 2003. "Exchange Rate Regimes: Choices and Consequences," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262072408, December.
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Cited by:
  1. Tamgac, Unay, 2013. "Duration of fixed exchange rate regimes in emerging economies," Journal of International Money and Finance, Elsevier, Elsevier, vol. 37(C), pages 439-467.

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