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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. Lars E.O. Svensson, 1998. "Inflation Targeting as a Monetary Policy Rule," NBER Working Papers 6790, National Bureau of Economic Research, Inc.
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  6. Sebastian Edwards, 2006. "The Relationship Between Exchange Rates and Inflation Targeting Revisited," Working Papers Central Bank of Chile 409, Central Bank of Chile.
  7. Jordi Galí & Tommaso Monacelli, 2004. "Monetary policy and exchange rate volatility in a small open economy," Economics Working Papers 835, Department of Economics and Business, Universitat Pompeu Fabra.
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  9. 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.
  10. 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.
  11. Lars E. O. Svensson, 2000. "Open-Economy Inflation Targeting," NBER Working Papers 6545, National Bureau of Economic Research, Inc.
  12. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
  13. Frankel, Jeffrey A. & Fajnzylber, Eduardo & Schmukler, Sergio L. & Serven, Luis, 2001. "Verifying exchange rate regimes," Journal of Development Economics, Elsevier, vol. 66(2), pages 351-386, December.
  14. 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.
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  16. Jeffrey A. Frankel & Shang-Jin Wei, 2008. "Estimation of De Facto Exchange Rate Regimes: Synthesis of the Techniques for Inferring Flexibility and Basket Weights," NBER Working Papers 14016, National Bureau of Economic Research, Inc.
  17. Samuel Reynard, 2008. "What Drives the Swiss Franc?," Working Papers 2008-14, Swiss National Bank.
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