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Systematic Managed Floating

Jeffrey Frankel

Open Economies Review, 2019, vol. 30, issue 2, No 3, 255-295

Abstract: Abstract A majority of countries neither freely float their currencies nor firmly peg. But most of the remainder in practice also don’t obey such well-defined intermediate exchange rate regimes as target zones. This paper proposes to define an intermediate regime, to be called “systematic managed floating,” as an arrangement where the central bank regularly responds to changes in total exchange market pressure by allowing some fraction to be reflected as a change in the exchange rate and the remaining fraction to be absorbed as a change in foreign exchange reserves. An operational criterion for judging systematic managed floaters is a high correlation between exchange rate changes and reserve changes. The paper rejects the view that exchange rate regimes make no difference. In regressions to test effects on real exchange rates, we find that positive external shocks tend to cause real appreciation for most systematic managed-floaters; more strongly so for pure floaters; and not at all for most firm peggers. Two measures of exogenous external shocks are used: (i) for commodity-exporters, a country-specific index of global prices of the export commodities and (ii) for other Asian emerging market economies, the VIX.

Keywords: Exchange rate regimes; Foreign exchange intervention; Managed float (search for similar items in EconPapers)
JEL-codes: F31 F33 F41 (search for similar items in EconPapers)
Date: 2019
References: Add references at CitEc
Citations: View citations in EconPapers (24)

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Chapter: Systematic Managed Floating (2021) Downloads
Working Paper: Systematic Managed Floating (2017) Downloads
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DOI: 10.1007/s11079-019-09528-8

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