Better two eyes than one: A synthesis classification of exchange rate regimes

Cécile Couharde () and Carl Grekou

International Economics, 2024, vol. 180, issue C

Abstract: This paper proposes a new de facto classification of exchange rate regimes, the synthesis classification. This framework offers several advantages over existing de facto classifications. First, it provides a unified framework that integrates the most divergent classifications, the RR and LYS classifications, not only achieving broader coverage but also encompassing a wide spectrum of exchange regimes. Second, it fits better with the historical developments of exchange rate regimes in the post-Bretton Woods era. Among others, it brings a nuanced perspective on the so-called hollowing-out hypothesis by showing that the evolution of de facto regimes —especially in emerging economies since the late 1990s— has essentially involved a shift toward more tightly “managed” intermediate regimes, rather than a move away from them. As an illustration of the insightfulness of our classification, we empirically revisit the relationship between currency crises and exchange rate regimes. Our classification not only associates a higher probability of currency crisis with both intermediate and floating regimes, but also shows better statistical performances in predicting currency crises compared to other classifications.

Keywords: Currency crisis; De facto classifications; Exchange rate regimes; Probit model; ROC analysis (search for similar items in EconPapers)
JEL-codes: E52 F33 F4 O24 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Better Two Eyes than One: A Synthesis Classification of Exchange Rate Regimes (2021)
Working Paper: Better two eyes than one: A synthesis classification of exchange rate regimes (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inteco:v:180:y:2024:i:c:s2110701724000799

DOI: 10.1016/j.inteco.2024.100556

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