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Measuring exchange rate flexibility in Europe

  • Gaetano, D'Adamo

In official terms, European countries that are not in the EMU have been showing a polarization of monetary policy regimes in the last fifteen years: either Inflation Targeting or fixed exchange rates. I apply several methods recently developed by the literature to measure exchange rate flexibility to these European countries, in order to see whether such polarization has indeed occurred from a de facto point of view. Using these approaches, I find that the move to Inflation Targeting did bring about higher exchange rate flexibility, but only up to a level that is not comparable to that of the non-European benchmark floaters. Inflation Targeters in Europe also seem to have put some weight on stabilization of the exchange rate vis à vis the euro, after its introduction; fixed exchange rate arrangements, instead, apart from official policy changes, remained mostly stable throughout the last decade.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 26612.

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Date of creation: Jul 2009
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Handle: RePEc:pra:mprapa:26612
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  1. Frankel, Jeffrey & Wei, Shang-Jin, 2008. "Estimation of De Facto Exchange Rate Regimes: Synthesis of The Techniques for Inferring Flexibility and Basket Weights," Working Paper Series rwp08-026, Harvard University, John F. Kennedy School of Government.
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  11. Ball, Christopher P. & Reyes, Javier, 2008. "Inflation targeting or fear of floating in disguise? A broader perspective," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 308-326, March.
  12. Clarida, Richard H, 2001. "The Empirics of Monetary Policy Rules in Open Economies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(4), pages 315-23, October.
  13. Serven, Luis & Frankel, Jeffrey & Fajnzylber, Eduardo & Schmukler, Sergio, 2000. "Verifying exchange rate regimes," Policy Research Working Paper Series 2397, The World Bank.
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  17. von Ungern-Sternbert, Thomas, 1987. "Does the Swiss National Bank Stabilize the Swiss Franc Exchange Rates?," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(1), pages 105-13, January.
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