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Capital market integration, currency crises, and exchange rate regimes 1990-2002

  • Ephraim Clark

    (ESC-Lille and Middlesex University, UK)

  • Amel Zenaidi

    (Institut des Hautes Etudes Commerciales, Université du 7 novembre � Carthage, Tunisia)

  • Monia Gharbi Trabelsi

    (Institut des Hautes Etudes Commerciales, Université du 7 novembre � Carthage, Tunisia)

The international capital market integration and currency crises of the last decade have renewed the debate on optimal exchange rate regimes. Research is mixed regarding what their effect has been on the system of exchange rate regimes and the anchor currencies at the centre of the system. The debate is complicated by growing empirical evidence that the de jure regimes announced by governments often differ from the de facto regimes that are actually applied. In this paper we divide the period 1990-2002 according to the major crises and use the generalized method of moments to identify the individual de facto regimes and relevant anchor currencies for each sub-period. We find that although intermediate regimes as a percentage of the overall database remained stable over the three periods, the type of peg and anchor currencies varied considerably. Pegs on a single currency fell from 62% of the sample in the first period to 49% in the second period, then rose to 66% in the third period. Basket pegs rose from 33% in the first period to 51% in the second period and back to 34% in the third period. Independent floats disappeared after the first period. When we group countries according to their access to capital markets, we find that all nine of the developed countries in the sample followed some type of intermediate regime for all three periods. We also find a trend towards hard pegs in the group of countries that has managed to increase its integration in the international capital markets. Our results also suggest that the US dollar remains the main anchor currency in the international financial system, even after the major currency crises and the rise of the euro. Copyright © 2007 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/ijfe.338
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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: 280-306

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Handle: RePEc:ijf:ijfiec:v:13:y:2008:i:3:p:280-306
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  1. Serven, Luis & Frankel, Jeffrey & Fajnzylber, Eduardo & Schmukler, Sergio, 2000. "Verifying exchange rate regimes," Policy Research Working Paper Series 2397, The World Bank.
  2. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
  3. Paul R. Masson, 2000. "Exchange Rate Regime Transitions," IMF Working Papers 00/134, International Monetary Fund.
  4. Hausmann, Ricardo & Panizza, Ugo & Stein, Ernesto, 2001. "Why do countries float the way they float?," Journal of Development Economics, Elsevier, vol. 66(2), pages 387-414, December.
  5. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  6. Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc.
  7. Alberto Alesina & Alexander Wagner, 2003. "Choosing (and reneging on) exchange rate regimes," NBER Working Papers 9809, National Bureau of Economic Research, Inc.
  8. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 1-48, February.
  9. Lawrence H. Summers, 2000. "International Financial Crises: Causes, Prevention, and Cures," American Economic Review, American Economic Association, vol. 90(2), pages 1-16, May.
  10. Eduardo Levy Yeyati & Federico Sturzenegger & Iliana Reggio, 2002. "On the Endogeneity of Exchange Rate Regimes," Business School Working Papers veintiuno, Universidad Torcuato Di Tella.
  11. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  12. 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.
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