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What is Learned from a Currency Crisis, Fear of Floating or Hollow Middle? Identifying Exchange Rate Policy in Recent Crisis Countries

Listed author(s):
  • Soyoung Kim

    ()

    (Department of Economics, Korea University)

This paper develops a new methodology to infer the de facto exchange rate regime, based on a structural VAR model with sign restrictions. The methodology is applied to data from eleven emerging markets that recently experienced a currency crisis. The main findings are: (1) to be consistent with the “Hollow Middle?hypothesis, many countries moved toward hard pegs, such as dollarization and a currency board, or more flexible exchange rate arrangements that are close to the free float in the post-crisis period; and (2) the cases where a country over-states its exchange rate flexibility (including the case of “Fear of Floating? are found in all samples, but such cases tend to be less frequently found in the post-crisis period than in the pre-crisis period.

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File URL: http://econ.korea.ac.kr/~ri/WorkingPapers/w0712.pdf
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Paper provided by Institute of Economic Research, Korea University in its series Discussion Paper Series with number 0712.

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Date of creation: 2007
Handle: RePEc:iek:wpaper:0712
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  1. Leonardo Hernández & Peter Montiel, 2002. "Post-crisis exchange rate policy in five Asian countries: filling in the 'hollow middle'?," Proceedings, Federal Reserve Bank of San Francisco, issue Sep.
  2. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
  3. Wade, Robert, 1998. "The Asian debt-and-development crisis of 1997-?: Causes and consequences," World Development, Elsevier, vol. 26(8), pages 1535-1553, August.
  4. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  5. Taimur Baig, 2001. "Characterizing Exchange Rate Regimes in Post-Crisis East Asia," IMF Working Papers 01/152, .
  6. Maurice Obstfeld & Kenneth Rogoff, 1995. "The mirage of fixed exchange rates," Working Papers in Applied Economic Theory 95-08, Federal Reserve Bank of San Francisco.
  7. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
  8. 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.
  9. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
  10. Uhlig, H.F.H.V.S., 1999. "What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure," Discussion Paper 1999-28, Tilburg University, Center for Economic Research.
  11. Kim, Soyoung, 2005. "Monetary Policy, Foreign Exchange Policy, and Delayed Overshooting," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(4), pages 775-782, August.
  12. 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, September.
  13. Kim, Soyoung, 2003. "Monetary policy, foreign exchange intervention, and the exchange rate in a unifying framework," Journal of International Economics, Elsevier, vol. 60(2), pages 355-386, August.
  14. Fabio Canova & Gianni De Nicolo, 2000. "Monetary disturbances matter for business fluctuations in the G-7," International Finance Discussion Papers 660, Board of Governors of the Federal Reserve System (U.S.).
  15. Barry Eichengreen & Charles Wyplosz, 1993. "The Unstable EMS," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1), pages 51-144.
  16. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
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