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Exchange Rate Regimes in the Modern Era : Fixed, Floating, and Flaky

  • Andrew K. Rose

This paper provides a selective survey of the incidence, causes, and consequences of a country's choice of its exchange rate regime. I begin with a critical review of Michael Klein and Jay C. Shambaugh's (2010) book Exchange Rate Regimes in the Modern Era, and then proceed to provide an alternative overview of what the economics profession knows and needs to know about exchange rate regimes. While a fixed exchange rate with capital mobility is a well-defined monetary regime, floating is not; thus, it is unclear whether it is theoretically sensible to compare countries across exchange rate regimes. This comparison is quite difficult to make empirically. It is often hard to figure out what the exchange rate regime of a country is in practice, since there are multiple conflicting regime classifications. More importantly, similar countries choose radically different exchange rate regimes without substantive consequences for macroeconomic outcomes like output growth and inflation. That is, the profession knows surprisingly little about either the causes or consequences of national choices of exchange rate regimes. But since the consequences of these choices are small, understanding their causes is of only academic interest. (JEL E52, F33)

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Article provided by American Economic Association in its journal Journal of Economic Literature.

Volume (Year): 49 (2011)
Issue (Month): 3 (September)
Pages: 652-72

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Handle: RePEc:aea:jeclit:v:49:y:2011:i:3:p:652-72
Note: DOI: 10.1257/jel.49.3.652
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  1. repec:cto:journl:v:20:y:2000:i:1:p:115-122 is not listed on IDEAS
  2. Jay C. Shambaugh, 2004. "The Effect of Fixed Exchange Rates on Monetary Policy," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 300-351, February.
  3. Michael W. Klein, 2002. "Dollarization and Trade," NBER Working Papers 8879, National Bureau of Economic Research, Inc.
  4. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates
    [This Time Is Different: Eight Centuries of Financial Folly]
    ," Introductory Chapters, Princeton University Press.
  5. Flood, Robert P & Rose, Andrew K, 1998. "Understanding Exchange Rate Volatility Without the Contrivance of Macroeconomics," CEPR Discussion Papers 1944, C.E.P.R. Discussion Papers.
  6. Tornell, Aaron & Velasco, Andres, 1995. "Fixed Versus Flexible Exchange Rates: Which Provides More Fiscal Discipline," Working Papers 95-06, C.V. Starr Center for Applied Economics, New York University.
  7. Flood, Robert P & Rose, Andrew K, 1993. "Fixing Exchange Rates: A Virtual Quest for Fundamentals," CEPR Discussion Papers 838, C.E.P.R. Discussion Papers.
  8. 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.
  9. Alexis Cruz-Rodriguez, 2013. "Choosing and Assessing Exchange Rate Regimes: a Survey of the Literature," Revista de Analisis Economico – Economic Analysis Review, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines, vol. 28(2), pages 37-61, October.
  10. Baxter, Marianne & Stockman, Alan C., 1989. "Business cycles and the exchange-rate regime : Some international evidence," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 377-400, May.
  11. Atish R. Ghosh & Jonathan David Ostry & Charalambos G. Tsangarides, 2011. "Exchange Rate Regimes and the Stability of the International Monetary System," IMF Occasional Papers 270, International Monetary Fund.
  12. 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.
  13. Alexander Guembel & Oren Sussman, 2004. "Optimal Exchange Rates: A Market Microstructure Approach," Journal of the European Economic Association, MIT Press, vol. 2(6), pages 1242-1274, December.
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