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. This article provides empirical support for the hypothesis that different exchange rate regimes have an impact on inflation in advanced, emerging and developing countries. 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. Investigating the relationship between exchange rate volatility and macroeconomic volatility in.
Husain, ashoka mody, robin brooks, and nienke oomes 2004 international monetary fund may 24, 2004. 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. Evolution and performance of exchange rate regimes by. Using recent advances in the classification of exchange rate regimes, the key message in this paper is that, as. Performance in developing countries versus advanced economies. Exchange rate regimes, monetary policy and inflation targeting. 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. Exchange rate regimes in the modern era the mit press. Evolution and performance of exchange rate regimes core.
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. This study assesses the historical durability and performance of alternative exchange rate regimes, with special focus on developing and emerging market countries. The pegged exchange rate system was the first exchange rate regime adopted in nigeria. 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. 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.
The impact of exchange rate regimes on economic growth. Issues relating to the evolution of exchange rate regimes are examined. 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. Pdf using recent advances in the classification of exchange rate regimes, this paper finds no support for the popular bipolar view that countries will. 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.
Thus, the empirical results reveal some relevant arguments that support the fix exchange regime. Exchange rate regimes and revenue performance in sub. 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. The paper also includes a discussion of the alternative exchangerate regimes available. The shift has been from a nominal fix to oneway nominal movement over the nineties to twoway with low volatility implying a. Exchange rate regimes exchange rates are typically categorised as floating or fixed. Evolution and performance of exchange rate regimes. 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.
Evolution and performance of exchange rate regimes 1 prepared by kenneth s. Use the free adobe acrobat reader to view this pdf file. Evolution of exchange rate regimes in international arena. 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. Order information for full text in hard copy abstract below. The performance of the pula exchange rate as well as, broadly, the monetary policy framework has largely reflected this objective. An empirical assessment of exchange arrangements and. 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. Does the exchange rate regime affect macroeconomic. Choice of exchange rate regimes for developing countries april 2001 africa region working paper series no. Introduction there has been considerable evolution in indias exchange rate regime over the reform years1. Evolution and performance of exchange rate regimes book. Whatever the ultimate relevance of exchange rate regimes on economic performance is, a good understanding of the role of these variables is.
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. 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. It then uses the natural classification to document the main features of regime evolution and durability across countries, differentiating between groups of countries. The evolution and impact of asian exchange rate regimes. 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. Evolution and performance of exchange rate regimes ebook. Exchange rate regimes and revenue performance in subsaharan africa.
Latin america, exchange rate regimes, inflation targeting. The objective is to stabilise the tradeweighted real exchange rate. Exchange rate regimes in developing and emerging asia. Evolution of exchange rate regimes in international arena economics essay. 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. 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. Evolution and performance of exchange rate regimes imf occasional paper. The bretton woods system was established in 1944 and lasted for around two decades. Empirical regularities concerning the variation over time of real and monetary disturbances and crosscountry inflation differentials are first discussed. The paper then develops a model that incorporates these regularities and thereby enables exchange rate regime changes to be viewed as optimal and. 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. Since the breakdown of the bretton woods system in the early 1970s, countries have adopted a wide variety of regimes, ranging from pure. Evolution of the exchange rate regime founded in may 1964, the brb has maintained the exchange rate regime set up by the belgian trusteeship until february 1965. How have exchange rate regimes evolved in recent years in africa and how does the.
The evolution of exchange rate regimes and some future perspectives 5. I expect it to become the anchor reference for people working in the foreign exchange field. Figure 1 shows the evolution since 1967 of two measures of the dollars. Evolution and performance of exchange rates regimes. Few topics in international economics are as controversial as the choice of an exchange rate regime. Exchange rate movements and economic performance in republic of macedonia. The performance of exchange rate regimes in developing. Evolution of indias exchange rate regime ashima goyal i. 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. Moreover, it may affect many other fronts related to nominal issues such as trade influenced by real. An analysis of the operation and consequences of exchange rate regimes in an era of increasing international interdependence. It is often hard to figure out what the exchange rate regime of a country is in. 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. Praise for handbook of exchange rates this book is remarkable.
For example, the market exchange rate may be 5 5 zlotys to the u. Exchange rate evolution in bangladesh 7 introduction 3. Evolution and performance of exchange rate regimes kenneth s. Exchange rate regimes, inflation and growth in developing. Rather, intermediate regimes have shown remarkable durability. Levy yeyati, in the evidence and impact of financial globalization, 20. The exchange rate is sometimes called the most important price in a highly globalized world. The choice and design of exchange rate regimes bis. Exchange rate regimes in the modern era meet the berkeley.
Exchange rate regime an overview sciencedirect topics. The analysis suggests that as economies mature, the value of exchange rate flexibility rises. With the outbreak of the two world wars in 1914 and 1939, stable exchange rate regimes had gone completely haywire. 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. What are the costs and benefits of various exchange rate regimes. Debates on the appropriate exchange rate regime for a country are perennially lively. For emerging markets, however, intermediate regimes remain a popular choicethough less so than a decade ago. The performance of exchange rate regimes in developing countries does the classification scheme matter. 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. This section describes the evolution of ex chan ge rate regimes across t he world usi ng. Husain, ashoka mody, nienke oomes, robin brooks and kenneth rogoff. Pdf the international community has experimented with many exchange rate. Pdf evolution and performance of exchange rate regimes. 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.