Testing the ‘Fear of Floating’ Hypothesis: A Statistical Analysis for Eight African Countries
Ahmad Hassan Ahmad and
Eric Pentecost ()
Open Economies Review, 2020, vol. 31, issue 2, No 11, 407-430
Abstract This paper revisits the fear of floating hypotheses for eight African countries from the collapse of the Bretton Woods fixed exchange rate system in the early 1970s up until December 2017. This long period of calendar time allows us to extend previous studies by examining the fear of floating hypotheses in two distinct ways. First, we look at a set of descriptive statistics to compare the degree of exchange rate flexibility under alternative de jure exchange rate regimes. We find no statistical difference between exchange volatility between declared floaters and fixers, but greater reserve volatility between the floaters, which is suggestive of fear of floating. Second, we use a non-linear, threshold VAR model, estimated for each country, to test for a relationship between exchange rate changes and reserve changes. The results suggest some evidence of a fear of floating for countries which have declared a de jure floating regime, with the regime-dependent impulse responses indicating that exchange rate appreciation due to positive reserve shocks is more prevalent in the high reserve regimes, indicative that level of foreign reserves available are important for their exchange rate policies. In general, although the countries with de jure floating regimes have a lower threshold than those with pegged regimes, reserves adjust by more than the exchange rates showing a fear of floating.
Keywords: Exchange rates; International reserves; Fear of floating; Threshold VAR (search for similar items in EconPapers)
JEL-codes: F31 F33 C22 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
http://link.springer.com/10.1007/s11079-019-09557-3 Abstract (text/html)
Access to full text is restricted to subscribers.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:kap:openec:v:31:y:2020:i:2:d:10.1007_s11079-019-09557-3
Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/11079/PS2
Access Statistics for this article
Open Economies Review is currently edited by G.S. Tavlas
More articles in Open Economies Review from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().