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What is Learned from a Currency Crisis, Fear of Floating or Hollow Middle? Identifying Exchange Rate Policy in Recent Crisis Countries

Soyoung Kim

No 712, Discussion Paper Series from Institute of Economic Research, Korea University

Abstract: This paper develops a new methodology to infer the de facto exchange rate regime, based on a structural VAR model with sign restrictions. The methodology is applied to data from eleven emerging markets that recently experienced a currency crisis. The main findings are: (1) to be consistent with the “Hollow Middle?hypothesis, many countries moved toward hard pegs, such as dollarization and a currency board, or more flexible exchange rate arrangements that are close to the free float in the post-crisis period; and (2) the cases where a country over-states its exchange rate flexibility (including the case of “Fear of Floating? are found in all samples, but such cases tend to be less frequently found in the post-crisis period than in the pre-crisis period.

Keywords: De Facto Exchange Rate Regime; structural VAR; Fear of Floating; Hollow Middle; Currency Crisis (search for similar items in EconPapers)
JEL-codes: C32 E52 F31 F33 (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-cba, nep-mac and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:iek:wpaper:0712

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