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How to exit from fixed exchange rate regimes?

  • Ahmet Atil Asici

    (Graduate Institute of International Studies, Switzerland)

  • Nadezhda Ivanova
  • Charles Wyplosz

This paper improves upon the recently developed literature on exits from fixed exchange rate regimes in three ways: (1) It allows for two indicators for post-exit macroeconomic conditions, the change in the exchange rate and the change in the output gap; (2) it tests whether the distinction between orderly and disorderly exit is statistically justified, and concludes that it is not; (3) it deals with the sample selection problem. The results, subject to extensive sensitivity analysis, suggest that post-exits are better when depegging occurs in good macroeconomic conditions - an unnatural move for most policymakers - when world interest rates decline and in the presence of capital controls. Importantly, 'good' macroeconomic policies do not seem to help with post-exit performance. Copyright © 2007 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/ijfe.340
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Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 13 (2008)
Issue (Month): 3 ()
Pages: 219-246

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Handle: RePEc:ijf:ijfiec:v:13:y:2008:i:3:p:219-246
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