IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

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

Following the demise of the Bretton-Woods increasing number of countries has been opting for flexible exchange rate regimes. Exiting from fixed regimes however is not without costs. Regime transitions have often been occurred in the midst of a crisis which has considerable economic costs in terms of output contraction and exchange rate depreciation. Given the big number of countries having still fixed regimes and financial markets that are fairly close and expected to be liberalized sooner or later, issue of exiting a peg without incurring crisis is a real challenge confronting these countries. The aim of this paper is to determine the conditions under which orderly exit is possible. The paper employs Binary Recursive Tree and standard regression frameworks. Analysis shows that countries with higher output gap and overvalued real exchange rate, among others, are doomed to exit in a disorderly way. Following their exit output collapses and exchange rate depreciates considerably. The ill-managed financial liberalization and macroeconomic stabilization programs seem to lay the seeds of instability. An interesting finding is that the conventional strengths of parametric regression analysis can be dramatically improved by utilizing findings of non-parametric BRT technology. Sample contains all countries depending on the data availability, and covers 1975-2004 period.

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: http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIWP14-2007.pdf
Download Restriction: no

Paper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 14-2007.

as
in new window

Length: 69
Date of creation: 15 Mar 2007
Date of revision:
Handle: RePEc:gii:giihei:heiwp14-2007
Contact details of provider: Postal: P.O. Box 36, 1211 Geneva 21
Phone: ++41 22 731 17 30
Fax: ++41 22 738 43 06
Web page: http://www.graduateinstitute.ch/economics
Email:


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. Levy-Yeyati, Eduardo & Sturzenegger, Federico & Reggio, Iliana, 2006. "On the Endogeneity of Exchange Rate Regimes," Working Paper Series rwp06-047, Harvard University, John F. Kennedy School of Government.
  2. 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.
  3. Bacchetta, Philippe & Aghion, Philippe & Banerjee, Abhijit, 2004. "Financial Development and the Instability of Open Economies," Scholarly Articles 4554209, Harvard University Department of Economics.
  4. Charles WYPLOSZ, 2001. "How Risky Is Financial Liberalization In The Developing Countries?," G-24 Discussion Papers 14, United Nations Conference on Trade and Development.
  5. Romain Rancière & Aaron Tornell & Frank Westermann, 2002. "Systemic crises and growth," Economics Working Papers 854, Department of Economics and Business, Universitat Pompeu Fabra, revised Nov 2004.
  6. 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.
  7. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
  8. 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.
  9. MASSON, Paul & RUGE-MURCIA, Francisco J., 2003. "Explaining the Transition Between Exchange Rate Regimes," Cahiers de recherche 15-2003, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  10. Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
  11. 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.
  12. Aaron Tornell, 2005. "Systemic Crises and Growth (September 2006)," UCLA Economics Online Papers 359, UCLA Department of Economics.
  13. Asici, Ahmet Atil & Ivanova, Nadezhda & Wyplosz, Charles, 2005. "How to Exit from Fixed Exchange Rate Regimes," CEPR Discussion Papers 5141, C.E.P.R. Discussion Papers.
  14. Axel Schimmelpfennig & Nouriel Roubini & Paolo Manasse, 2003. "Predicting Sovereign Debt Crises," IMF Working Papers 03/221, International Monetary Fund.
  15. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  16. 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.
  17. Joshua Aizenman & Reuven Glick, 2005. "Pegged Exchange Rate Regimes -- A Trap?," NBER Working Papers 11652, National Bureau of Economic Research, Inc.
  18. repec:rus:hseeco:181565 is not listed on IDEAS
  19. Aaron Tornell & Frank Westermann, 2002. "Boom-Bust Cycles in Middle Income Countries: Facts and Explanation," NBER Working Papers 9219, National Bureau of Economic Research, Inc.
  20. Roberto Chang & Andres Velasco, 1998. "Financial Fragility and the Exchange Rate Regime," NBER Working Papers 6469, National Bureau of Economic Research, Inc.
  21. Enrica Detragiache & Eisuke Okada & Ashoka Mody, 2005. "Exits From Heavily Managed Exchange Rate Regimes," IMF Working Papers 05/39, International Monetary Fund.
  22. 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.
  23. Graciela L. Kaminsky, 2003. "Varieties of Currency Crises," NBER Working Papers 10193, National Bureau of Economic Research, Inc.
  24. 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.
  25. Inci Ötker & Rupa Duttagupta, 2003. "Exits From Pegged Regimes; An Empirical Analysis," IMF Working Papers 03/147, International Monetary Fund.
  26. 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.
  27. 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.
  28. 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.
  29. Swati R. Ghosh & Atish R. Ghosh, 2003. "Structural Vulnerabilities and Currency Crises," IMF Staff Papers, Palgrave Macmillan, vol. 50(3), pages 7.
  30. 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.
  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. Calvo, Guillermo A. & Vegh, Carlos A., 1999. "Inflation stabilization and bop crises in developing countries," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 24, pages 1531-1614 Elsevier.
  33. 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.
  34. 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.
  35. 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.
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:gii:giihei:heiwp14-2007. 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: (Maria Sokolova)

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.