IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Parametric and Non-Parametric Approaches to Exits from Fixed Exchange Rate Regimes

  • Ahmed Atil Asici


    (Graduate Institute of International Studies, Geneva Switzerland)

When the Bretton-Woods system collapsed in the mid 1970s, almost all countries were pursuing one form of a pegged regime or another. Increasing trade and financial integration forced many countries to move to more flexible regimes. Some countries exited without experiencing major disruption to their economic activity, but the majority did so in the midst of a crisis. At the same period, generally for stabilization purposes, many developing countries were advised to pursue pegged regimes, in which the exchange rate was used as a nominal anchor to enhance the credibility of monetary policy. Moving to more flexible regimes once a certain level of economic stability was reached was the ultimate objective for many programs. Again, some countries managed this transition quite successfully, but the majority faced speculative attacks along the way. The aim of this study is to determine the conditions under which exits from pegged to flexible regimes are managed in an orderly manner. To do so, this paper proposes a way to merge two methodologies – standard regression analysis and CART analysis on a dataset of 128 countries from 1975 to 2002. The application of CART methodology to economic phenomenon like exiting is quite new. The analysis shows that higher output growth, higher private credit and an overvalued real exchange rate a year before exit, among others, increase the likelihood of exiting in a disorderly way. Following the exit both output and credit collapse and the exchange rate depreciates considerably. The ill-managed financial liberalization and macroeconomic stabilization programs seem to lay the seeds of instability that take the form of boom-bust cycles.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

File URL:
Download Restriction: no

Paper provided by Economic Research Forum in its series Working Papers with number 401.

in new window

Length: 49 pages
Date of creation: May 2008
Date of revision: May 2008
Publication status: Published by The Economic Research Forum (ERF)
Handle: RePEc:erg:wpaper:401
Contact details of provider: Postal: 7 Boulos Hanna Street, Dokki, Cairo
Phone: 202-3370810
Fax: 202-3616042
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Ahmet Asici & Charles Wyplosz, 2003. "The Art of Gracefully Exiting a Peg," The Economic and Social Review, Economic and Social Studies, vol. 34(3), pages 211–228.
  2. Bacchetta, Philippe & Aghion, Philippe & Banerjee, Abhijit, 2004. "Financial Development and the Instability of Open Economies," Scholarly Articles 4554209, Harvard University Department of Economics.
  3. Romain Ranciere & Aaron Tornell & Frank Westermann, 2005. "Systemic Crises and Growth," CESifo Working Paper Series 1451, CESifo Group Munich.
  4. Lei Zhang & A. Javier Hamann & Andrés Arias, 2005. "Monetary and Exchange Rate Dynamics During Disinflation: An Empirical Analysis," IMF Working Papers 05/33, International Monetary Fund.
  5. Aaron Tornell & Frank Westermann, 2002. "Boom-Bust Cycles in Middle Income Countries: Facts and Explanation," CESifo Working Paper Series 755, CESifo Group Munich.
  6. Swart R. Ghosh & Atish R. Ghosh, 2002. "Structural Vulnerabilities and Currency Crises," IMF Working Papers 02/9, International Monetary Fund.
  7. 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.
  8. Sergio L. Schmukler & Graciela Laura Kaminsky, 2003. "Short-Run Pain, Long-Run Gain: The Effects of Financial Liberalization," IMF Working Papers 03/34, International Monetary Fund.
  9. 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.
  10. Roberto Chang & Andres Velasco, 1998. "Financial Fragility and the Exchange Rate Regime," NBER Working Papers 6469, National Bureau of Economic Research, Inc.
  11. Guillermo A. Calvo & Carlos A. Vegh, 1999. "Inflation Stabilization and BOP Crises in Developing Countries," NBER Working Papers 6925, National Bureau of Economic Research, Inc.
  12. Paul Masson & Francisco J. Ruge-Murcia, 2005. "Explaining the Transition between Exchange Rate Regimes," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(2), pages 261-278, 06.
  13. Ahmet Atil Asici & Nadezhda Ivanova & Charles Wyplosz, 2008. "How to exit from fixed exchange rate regimes?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 13(3), pages 219-246.
  14. Joshua Aizenman & Reuven Glick, 2008. "Pegged Exchange Rate Regimes-A Trap?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(4), pages 817-835, 06.
  15. repec:rus:hseeco:181565 is not listed on IDEAS
  16. Klein, Michael W. & Marion, Nancy P., 1997. "Explaining the duration of exchange-rate pegs," Journal of Development Economics, Elsevier, vol. 54(2), pages 387-404, December.
  17. Pierre-Richard Agenor, 2004. "Orderly exits from adjustable pegs and exchange rate bands," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 7(2), pages 83-108.
  18. Hans Genberg & Alexander K. Swoboda, 2004. "Exchange-Rate Regimes: "Does What Countries Say Matter?"," IHEID Working Papers 07-2004, Economics Section, The Graduate Institute of International Studies.
  19. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  20. Sergio Rebelo & Carlos A. Vegh, 2006. "When Is It Optimal to Abandon a Fixed Exchange Rate?," NBER Working Papers 12793, National Bureau of Economic Research, Inc.
  21. Charles WYPLOSZ, 2001. "How Risky Is Financial Liberalization In The Developing Countries?," G-24 Discussion Papers 14, United Nations Conference on Trade and Development.
  22. Eduardo Levy Yeyati & Federico Sturzenegger & Iliana Reggio, 2002. "On the Endogeneity of Exchange Rate Regimes," Business School Working Papers veintiuno, Universidad Torcuato Di Tella.
  23. Inci Ötker & Rupa Duttagupta, 2003. "Exits From Pegged Regimes: An Empirical Analysis," IMF Working Papers 03/147, International Monetary Fund.
  24. Barry J. Eichengreen & Inci Ötker & A. Javier Hamann & Esteban Jadresic & R. B. Johnston & Hugh Bredenkamp & Paul R. Masson, 1998. "Exit Strategies: Policy Options for Countries Seeking Exchange Rate Flexibility," IMF Occasional Papers 168, International Monetary Fund.
  25. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  26. Sebastian Edwards & Igal Magendzo, 2003. "A Currency of One's Own? An Empirical Investigation on Dollarization and Independent Currency Unions," NBER Working Papers 9514, National Bureau of Economic Research, Inc.
  27. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2005. "Does financial liberalization spur growth?," Journal of Financial Economics, Elsevier, vol. 77(1), pages 3-55, July.
  28. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  29. Enrica Detragiache & Eisuke Okada & Ashoka Mody, 2005. "Exits from Heavily Managed Exchange Rate Regimes," IMF Working Papers 05/39, International Monetary Fund.
  30. Barry Eichengreen & Raul Razo-Garcia, 2006. "The international monetary system in the last and next 20 years," Economic Policy, CEPR;CES;MSH, vol. 21(47), pages 393-442, 07.
  31. 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, June.
  32. Aaron Tornell, 2005. "Systemic Crises and Growth (September 2006)," UCLA Economics Online Papers 359, UCLA Department of Economics.
  33. Graciela L. Kaminsky, 2003. "Varieties of Currency Crises," NBER Working Papers 10193, National Bureau of Economic Research, Inc.
  34. Charles Wyplosz, 2002. "How Risky is Financial Liberalization in the Developing Countries?," Comparative Economic Studies, Palgrave Macmillan, vol. 44(2-3), pages 1-26, September.
  35. Axel Schimmelpfennig & Nouriel Roubini & Paolo Manasse, 2003. "Predicting Sovereign Debt Crises," IMF Working Papers 03/221, International Monetary Fund.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:erg:wpaper:401. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Namees Nabeel)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.