Thus, the empirical results reveal some relevant arguments that support the fix exchange regime. Pdf the international community has experimented with many exchange rate. Research department using recent advances in the classification of exchange rate regimes, this paper finds no support for the popular bipolar view that countries will tend over time to move to the polar extremes of free. Husain, ashoka mody, robin brooks, and nienke oomes authorized for distribution by raghuram rajan december 2003 abstract this working paper should not be reported as representing views of the imf.
What are the costs and benefits of various exchange rate regimes. Choice of exchange rate regimes for developing countries april 2001 africa region working paper series no. This article provides empirical support for the hypothesis that different exchange rate regimes have an impact on inflation in advanced, emerging and developing countries. Brooks, robin j, aasim m husain, ashoka mody, nienke oomes, and kenneth rogoff. It then uses the natural classification to document the main features of regime evolution and durability across countries, differentiating between groups of countries.
The performance of exchange rate regimes in developing. Exchange rate regimes in the modern era meet the berkeley. Pdf using recent advances in the classification of exchange rate regimes, this paper finds no support for the popular bipolar view that countries will. Exchange rate regimes and revenue performance in subsaharan africa.
Rather, intermediate regimes have shown remarkable durability. The paper then develops a model that incorporates these regularities and thereby enables exchange rate regime changes to be viewed as optimal and. This study assesses the historical durability and performance of alternative exchange rate regimes, with special focus on developing and emerging market countries. An empirical assessment of exchange arrangements and. The economic results obtained indicate the existence of a positive relationship between exchange rate regimes and economic growth and give support to the hypothesis that if the developing countries adopt a fixed exchange rate regime, they will attain a higher growth rate than if they adopt a flexible or an intermediate regime, so the best. Hard pegs and floating regimes seem to be the only viable options. Evolution and performance of exchange rate regimes. The bretton woods system was established in 1944 and lasted for around two decades. Issues relating to the evolution of exchange rate regimes are examined. Evolution and performance of exchange rates regimes. Use the free adobe acrobat reader to view this pdf file. Investigating the relationship between exchange rate volatility and macroeconomic volatility in.
An empirical analysis of the exchange rate regime in the. Using recent advances in the classification of exchange rate regimes, this paper finds no support for the popular bipolar view that countries will tend over time to move to the polar extremes of free float or rigid peg. For an identical sample of observations from 73 countries for 19842001, only the scheme based on parallel rates suggests a significant effect negative of floating on growth. It is often hard to figure out what the exchange rate regime of a country is in. Exchange rate regimes, inflation and growth in developing. Whatever the ultimate relevance of exchange rate regimes on economic performance is, a good understanding of the role of these variables is. Praise for handbook of exchange rates this book is remarkable. Introduction there has been considerable evolution in indias exchange rate regime over the reform years1. The issue of the appropriate exchange rate regime for individual countries has been perennially lively, and the role played by international capital flows and domestic financial systems in determining the performance of these regimes has gained prominence in the policy debate. The objective is to stabilise the tradeweighted real exchange rate. The evolution and impact of asian exchange rate regimes.
Figure 1 shows the evolution since 1967 of two measures of the dollars. Exchange rate regimes exchange rates are typically categorised as floating or fixed. The effects of different exchange rate regimes on inflation performance are examined through least squares dummy variables regressions using panel data on 125 countries for the postbretton woods 19741999. Since the breakdown of the bretton woods system in the early 1970s, countries have adopted a wide variety of regimes, ranging from pure.
Part of this difference in growth performance reflects differences in export performance during the initial years of the crisis, which in turn can be explained by real exchange rate depreciations. The performance of the pula exchange rate as well as, broadly, the monetary policy framework has largely reflected this objective. In their discussions of papers on exchange rate regimes in september and november 1999, imf executive directors concluded that there were no simple prescriptions for the choice of a countrys exchange rate regime. Exchange rate regimes in developing and emerging asia. Official and four alternative regime classification schemes based on observed exchange rate behaviour are used to examine the relationship with inflation and growth in 91 developing countries over the period 19842001.
Evolution and performance of exchange rate regimes imf occasional paper. Evolution and performance of exchange rate regimes ebook. The paper also includes a discussion of the alternative exchangerate regimes available. How have exchange rate regimes evolved in recent years in africa and how does the. These exchange rate arrangements have normally succumbed in the face of massive capital inflow reversals especially in developing countries thus provoking a search for options. The choice of the exchange rate regime err has direct implications on the evolution of key nominal variables inflation, relative prices and, as a result, on output growth and volatility, and income distribution. Evolution and performance of exchange rate regimes book. Official and four alternative regime classification schemes based on observed exchange rate behaviour are used to examine the relationship with inflation and growth in developing countries. Exchange rate regimes and revenue performance in sub. For emerging markets, however, intermediate regimes remain a popular choicethough less so than a decade ago. Evolution of exchange rate regimes in international arena economics essay. Levy yeyati, in the evidence and impact of financial globalization, 20.
Evolution of exchange rate regimes in international arena. Empirical regularities concerning the variation over time of real and monetary disturbances and crosscountry inflation differentials are first discussed. The nigerian pound was fixed by the 195 a central bank ordinance at par with the pound sterling obaseki, 1991 and the cbn was responsible for buying and selling foreign. This demands primarily the use of nonmonetary instruments like fiscal policy or capital controls, but the behavioral model of the exchange rate implies that intervention can also play a role. The shift has been from a nominal fix to oneway nominal movement over the nineties to twoway with low volatility implying a. A countrys choice of its exchange rate regime, between governmentmanaged fixed rates and marketdetermined floating rates has significant implications for monetary policy. Few topics in international economics are as controversial as the choice of an exchange rate regime. An exchange rate regime is the way a monetary authority of a country or currency union manages the currency in relation to other currencies and the foreign exchange market. Using recent advances in the classification of exchange rate regimes, the key message in this paper is that, as. Debates on the appropriate exchange rate regime for a country are perennially lively. Using recent advances in the classification of exchange rate regimes, this paper finds no support for the popular bipolar view that countries will tend over time to move to the polar extremes of free. The analysis suggests that as economies mature, the value of exchange rate flexibility rises. Order information for full text in hard copy abstract below.
The pegged exchange rate system was the first exchange rate regime adopted in nigeria. Exchange rate regime an overview sciencedirect topics. The exchange rate is sometimes called the most important price in a highly globalized world. Evolution and performance of exchange rate regimes by. Latin america, exchange rate regimes, inflation targeting. Husain, ashoka mody, nienke oomes, robin brooks and kenneth rogoff. The performance of exchange rate regimes in developing countries does the classification scheme matter. Evolution of indias exchange rate regime ashima goyal i. Exchange rate movements and economic performance in republic of macedonia. An empirical study of exchange rate regimes based on data compiled from 150 member countries of the international monetary fund over the past thirty years. Moreover, it may affect many other fronts related to nominal issues such as trade influenced by real. Does the exchange rate regime affect macroeconomic. Lyons, dean and professor of finance, haas school of business, university of california berkeley it is quite easily the most wide ranging treaty of expertise on the forex market i have ever come across.
It is closely related to monetary policy and the two are generally dependent on many of the same factors, such as economic scale and openness, inflation rate, elasticity of the labor market, financial market development. For example, the market exchange rate may be 5 5 zlotys to the u. Exchange rate regimes, monetary policy and inflation targeting. The choice and design of exchange rate regimes bis. Evolution and performance of exchange rate regimes 1 prepared by kenneth s. Pdf evolution and performance of exchange rate regimes. Apart from one scheme that produces markedly unfavourable results for floating for reasons that are discussed in the paper, the consistent findings are that a floats have. Exchange rate regimes in the modern era the mit press. With the outbreak of the two world wars in 1914 and 1939, stable exchange rate regimes had gone completely haywire.
Performance in developing countries versus advanced economies. Exchange rate evolution in bangladesh 7 introduction 3. I expect it to become the anchor reference for people working in the foreign exchange field. Evolution and performance of exchange rate regimes by husain aasim m, mody ashoka, oomes nienke, brooks robin, and rogoff kenneth using recent advances in the classification of exchange rate regimes, this paper finds no support for the popular bipolar view that countries will tend over time to move to the polar extremes of free float or rigid peg. Of course, any analysis of the evolution of exchange rate regimes in emerging markets must be interpreted with caution, given the measurement problems noted above. Most countries which have experienced exchange rate crises over the last two decades have been under soft pegs or crawls. Each country was responsible for maintaining its exchange rate with in 1 per cent of the adopted par value by buying or selling foreign exchange as necessary. An analysis of the operation and consequences of exchange rate regimes in an era of increasing international interdependence. Evolution and performance of exchange rate regimes core. This section describes the evolution of ex chan ge rate regimes across t he world usi ng. Evolution and performance of exchange rate regimes kenneth s. As the figure titled fixed exchange rate regime illustrates, the true market exchange rate is at e m but the polish government wishes to peg the currency at the lower exchange rate e p. Husain, ashoka mody, robin brooks, and nienke oomes 2004 international monetary fund may 24, 2004. In the 1990s, a new set of considerations came to the fore, particularly the role played by international capital flows and domestic financial systems in determining the performance of exchange rate regimes.