Verifying Exchange Rate Regimes

By Jeffrey A. Frankel, Eduardo Fajnzylber, S. Schmukler, L. Serven. 2001

110 citations recorded by the source corpus.

Credibility and transparency are at the core of the current debate on exchange rate regimes. Among the reasons why intermediate regimes have fallen out of favor, a possibly important one is that they are not transparent: it is difficult to verify them. This paper investigates how difficult it is for investors to verify from observable data if the authorities are in fact following the exchange rate regime that they claim to be following. Of the various intermediate regimes, the authors focus on the case of basket pegs with bands. Statistically, it can take a surprisingly long span of data for an econometrician or an investor to verify whether such a regime is actually in operation. The authors find that verification becomes more difficult as the regime's bands widen and/or more currencies enter in the basket peg. The authors analyze regimes announced as free-floating, and find that in some cases the observed exchange rate data validate the announced regime.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/e995ba4ded2eef6337a48d2df7b5442c7d16905e

Citations in the corpus

• Global Transmission of Interest Rates: Monetary Independence and Currency Regime (2000, unknown): “3 For a more complete exposition of the advantages and disadvantages of alternative exchange rate regimes, see Frankel et al. (2001). other things equal.”