Exits From Pegged Regimes: An Empirical Analysis

July 1, 2003

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Format: Chicago

Inci Ötker, and Rupa Duttagupta. Exits From Pegged Regimes: An Empirical Analysis, (USA: International Monetary Fund, 2003) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Using countries' de facto exchange rate regimes during 1985-2002, this paper analyzes the determinants of exits from pegged regimes, where exits involve shifts to more or less flexible regimes, or adjustments within the existing regime. Distinguishing episodes characterized by "exchange market pressure" from orderly exits, the estimated probabilities of alternative exit episodes indicate that crises are preceded by a deterioration of economic conditions. In contrast, orderly exits to less flexible regimes are preceded by long regime duration, a decline in financial liabilities of the banking system, and an increase in official reserves. Exits to more flexible regimes are associated with both emerging market and other developing countries, and an increase in trade openness and government borrowing from banks. The results are robust to alternative sensitivity analyses and have reasonable predictive performance, confirming that economic and financial conditions and regime duration play important roles in determining the future course of exchange rate regimes.

Subject: Conventional peg, Crawling peg, Currency markets, Exchange rate arrangements, Exchange rate flexibility, Financial markets, Foreign exchange

Keywords: Band regime, Borrowing from the banking system, Conventional peg, Crawling peg, Currency crises, Currency markets, Determinants of exits, Exchange rate arrangements, Exchange rate flexibility, Exchange rate regime, Flexible regime, Floating regimes, Global, Government, Government borrowing, Peg regime, Pegged exchange rates, Regime transition, Western Europe, WP

Publication Details

Pages:

35
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2003/147
Stock No:

WPIEA1472003
ISBN:

9781451856750
ISSN:

1018-5941

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