- Robin Brooks, Kenneth Rogoff, Ashoka Mody, Nienke Oomes, and Aasim Husain
- Published Date:
- May 2004
Evolution and Perform ance of Exchange Rate Regimes
Kenneth S. Rogoff, Aasim M. Husain, Ashoka Mody,
Robin Brooks, and Nienke Oomes
INTERNATIONAL MONETARY FUND
© 2004 International Monetary Fund
Production: IMF Multimedia Services Division
Figures: Theodore F. Peters, Jr.
Typesetting: Alicia Etchebarne-Bourdin
Evolution and performance of exchange rate regimes/Kenneth S. Rogoff… [et al.]—Washington, D.C.: International Monetary Fund .
p. cm.—(Occasional paper; 229)
Includes bibliographical references
1. Foreign exchange rates. 2. Foreign exchange rates—Developing countries. 3. Inflation (Finance). 4. Business cycles. I. Rogoff, Kenneth S. II. Occasional paper (International Monetary Fund); 229. HG3811.E96 2004
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- I. Overview
- II. The Evolution of Exchange Rate Regimes: A Fresh Look
- III. Regime Performance: Inflation and Business Cycles
- Summary of Empirical Analysis of Exchange Rate Regimes
- Analytical Considerations
- Macroeconomic Performance and Crisis Probabilities: Summary Statistics
- Regime Performance and Levels of Development
- Achieving Credibility in Developing and Emerging Economies
- Appendix. Data and Regression Results for Economic Performance Analysis
- IV. Summary
- 2.1. Annual Transition Probabilities
- 3.1. Economic Performance Across Exchange Rate Regimes
- 3.2. Average Annual Inflation and Real Per Capita GDP Growth: Comparison of Dual (or Multiple) and Unified Exchange Rate Systems, 1970–99
- 3.3. Average Annual Inflation Rates Across Exchange Rate Regimes, 1970–99
- 3.4. Average Annual Real Per Capita GDP Growth Across Exchange Rate Regimes, 1970–99
- 3.5. Average Annual Growth Volatility Across Exchange Rate Regimes, 1970–99
- 3.6. Real Exchange Rate Volatility Across Exchange Rate Regimes, 1970–2002
- 3.7. Probability of Crises During Specific Regimes Using the Natural Exchange Rate Regime Classification
- Appendix Tables
- A2.1. Main Features of Various De Facto Classifications
- A2.2. Natural Classification Categories
- A2.3. Studies on Determinants of Exchange Rate Regimes (Likelihood to Float)
- A3.1. Variable Description
- A3.2. List of Countries
- A3.3 Comparing IMF De Jure and Natural Classifications
- A3.4. Inflation Performance Across Country Groups
- A3.5. Growth Performance Across Country Groups
- A3.6. Volatility of Real GDP Growth Performance Across Country Groups
- A3.7. Emerging Markets in the 1990s
- A3.8. Inflation Performance in Developing Countries: Announcement and Duration Effects
- A3.9. Robustness Tests
- 2.1. Natural Classification Regimes by De Jure Category, 1973–99
- 2.2 Countries with Dual/Parallel Foreign Exchange Markets
- 2.3 Natural Classification Regime Distribution
- 2.4 De Jure Regime Distribution
- 2.5. Natural Classification Regime Distribution by Country Group
- 2.6. IMF De Facto Regime Distribution
- 2.7. Levy-Yeyati-Sturzenegger Regime Distribution
- 2.8. Natural Classification Regime Transitions
- 3.1. Inflation Performance Across Regimes: Confidence Effect
- 3.2. Inflation Performance Across Regimes: Confidence and Discipline Effects
- 3.3. Inflation Performance in Advanced Countries, Emerging Markets, and Developing Countries: Confidence Effect
- 3.4. Inflation Performance in Advanced Countries, Emerging Markets, and Developing Countries: Confidence and Discipline Effects
- 3.5. Growth Performance Across Regimes
- 3.6. Growth Performance in Advanced Countries, Emerging Markets, and Developing Countries
- 3.7. Volatility of Real GDP Growth Performance Across Regimes
- 3.8. Volatility of Real GDP Growth Performance in Advanced Countries, Emerging Markets, and Developing Countries
- 3.9. Volatility of Real GDP Growth and Contamination Across Regimes: Evidence from Emerging Markets
- 3.10. Volatility of Real GDP Growth Across Regimes: Emerging Markets for the 1990s Only
- 3.11. The Inflation Benefit Associated with Announcement in Developing Countries
- 3.12. The Inflation Benefit Associated with Consistent Macroeconomic Policies in Developing Countries
The following symbols have been used throughout this paper:
- … to indicate that data are not available;
- — to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist;
- – between years or months (e.g., 2003–04 or January–June) to indicate the years or months covered, including the beginning and ending years or months;
- / between years (e.g., 2003/04) to indicate a fiscal (financial) year.
“n.a.” means not applicable.
“Billion” means a thousand million.
Minor discrepancies between constituent figures and totals are due to rounding.
The term “country,” as used in this paper, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate and independent basis.
The issue of the appropriate exchange rate regime for a country has been perennially lively, with a new set of considerations coming to the fore in the 1990s. The role played by international capital flows and domestic financial systems in determining the performance of exchange rate regimes has gained prominence in the policy debate over the appropriate exchange rate arrangement.
Using recent advances in the classification of exchange rate regimes to draw new lessons about the performance of alternative regimes, this paper’s key message is that, as economies and their institutions mature, the value of exchange rate flexibility increases. In reaching this overarching conclusion, the paper takes an empirical perspective to form a judgment of actual experience. The study takes as a given that multiple currencies will continue to exist in the foreseeable future. Hence, the policy analysis is intended for countries that choose to retain their own currencies.
The study was prepared by a staff team under the direction of Kenneth Rogoff, when he was Economic Counsellor and Director of the IMF’s Research Department. The team was led by Aasim Husain and Ashoka Mody, and included Robin Brooks and Nienke Oomes. The authors would like to acknowledge contributions from Andrew Berg, who worked on the subsection “Learning to Float” in Section III; Paolo Mauro and Grace Juhn, who provided the subsection “Empirical Findings on Factors Affecting Regime Choice” in Appendix II; and Antonio Spilimbergo, who did the estimations for the subsection “Regimes and Crisis Probabilities” in Section III. The paper also benefited from useful comments and suggestions from Tamim Bayoumi, Michael Bordo, Agustín Carstens, Barry Eichengreen, Ìnci Ötker-Robe, Jacques Polak, Carmen Reinhart, David J. Robinson, Miguel Savastano, Federico Sturzenegger, Lars Svensson, and numerous other colleagues throughout the Fund. Young Kim and Eisuke Okada provided valuable research assistance. Atish Ghosh generously shared his data set. Sheila Kinsella managed the Research Department end in the preparation of this paper. Gail Berre of the External Relations Department edited the paper and coordinated production of the publication.
An earlier draft of the paper was presented at an informal seminar of the IMF’s Executive Board, and the current version has benefited from the comments made on that occasion. The views expressed are those of the authors, however, and do not necessarily reflect those of national authorities or IMF Executive Directors.