Better two eyes than one: A synthesis classification of exchange rate regimes

This presentation proposes a new de facto classification of exchange rate regimes, the synthesis classification. The proposed framework has several advantages over existing de facto classifications. First, it offers a unified framework based on the most divergent classifications, the RR and LYS classifications, leading not only to a broader coverage but also to a broader spectrum of exchange systems. Second, it fits better with the known history of exchange rate regimes developments in the post-Bretton Woods era. Among other things, it brings an interesting nuance to the so-called hollowing-out hypothesis by showing that the evolution of de facto regimes—especially in emerging economies since the late 1990s—has essentially involved movement toward more tightly “managed” intermediate regimes and not a shift away from such regimes. As an illustration of the insightfulness of our classification, I empirically revisit the nexus between currency crises and exchange rate regimes. In addition to associate a higher probability of currency crisis with both intermediate and floating regimes, my classification, also displays better statistical performances than other classifications in predicting currency crises.