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Exchange-Rate Regimes: "Does What Countries Say Matter?"

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Abstract
Traditionally the IMF's Annual Report on Exchange Arrangements and Exchange Restrictions has been the main source of information about the exchange-rate policies pursued by member countries. The classification contained therein has been used to document the evolution of exchange rate regimes over time as well as to study the relationship between economic performance and the choice of exchange rate system. Recently a number of authors have challenged the results of these studies on the grounds that countries may not always be following the exchange rate policy that they have announced. For example, many countries appear to have a 'fear of floating' in the sense that the evolution of their exchange rate corresponds to what one would expect to see in a fixed exchange rate country even though they are officially following a floating rate policy. New classifications have been created claiming to represent countries' actual exchange rate policy as opposed to their declared policy. Using the new classification many results relating to the evolution of exchange rate regimes and the economic consequences of exchange-rate regime choices have been overturned. It is sometimes claimed that the new so-called de facto classifications are superior to the older de jure classifications. In this paper we argue that neither the officially declared exchange rate regime nor the de facto regime tells the full story about exchange rate policy. Both contain useful information and need to be taken into account. In addition we argue that countries which claim to be floating but in fact have relatively stable exchange rates are not necessarily breaking any commitment as sometimes has been suggested. Exchange rate stability may be the result of optimally chosen monetary policies. Furthermore, countries that use monetary policy instruments actively to stabilize their exchange rate may rationally not want to announce and commit to a fixed exchange rate because of a fear of being subject to speculative attacks. We present some empirical evidence consistent with this interpretation.

Suggested Citation

  • Hans Genberg & Alexander K. Swoboda, 2004. "Exchange-Rate Regimes: "Does What Countries Say Matter?"," IHEID Working Papers 07-2004, Economics Section, The Graduate Institute of International Studies.
  • Handle: RePEc:gii:giihei:heiwp07-2004
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    References listed on IDEAS

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    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 1-48.
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    3. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(2), pages 379-408.
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    5. Mussa, Michael, 1986. "Nominal exchange rate regimes and the behavior of real exchange rates: Evidence and implications," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 117-214, January.
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    More about this item

    Keywords

    International Economics; Exchange Rates; Trade; Whatever Related;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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