Fear of Floating

Guillermo A. Calvo and Carmen Reinhart ()

No 7993, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In recent years, many countries have suffered severe financial crises, producing a staggering toll on their economies, particularly in emerging markets. One view blames fixed exchange rates-- soft pegs'--for these meltdowns. Adherents to that view advise countries to allow their currency to float. We analyze the behavior of exchange rates, reserves, the monetary aggregates, interest rates, and commodity prices across 154 exchange rate arrangements to assess whether official labels' provide an adequate representation of actual country practice. We find that, countries that say they allow their exchange rate to float mostly do not--there seems to be an epidemic case of fear of floating.' Since countries that are classified as having a free or a managed float mostly resemble noncredible pegs--the so-called demise of fixed exchange rates' is a myth--the fear of floating is pervasive, even among some of the developed countries. We present an analytical framework that helps to understand why there is fear of floating.

JEL-codes: F31 F33 (search for similar items in EconPapers)
Date: 2000-11
Note: IFM
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Published as Calvo, Guillermo A. and Carmen M. Reinhart. "Fear Of Floating," Quarterly Journal of Economics, 2002, v107(2,May), 379-408.

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