Exits From Pegged Regimes: An Empirical Analysis

Inci Ötker-Robe () and Rupa Duttagupta

No 2003/147, IMF Working Papers from International Monetary Fund

Abstract: Using countries' de facto exchange rate regimes during 1985-2002, this paper analyzes the determinants of exits from pegged regimes, where exits involve shifts to more or less flexible regimes, or adjustments within the existing regime. Distinguishing episodes characterized by "exchange market pressure" from orderly exits, the estimated probabilities of alternative exit episodes indicate that crises are preceded by a deterioration of economic conditions. In contrast, orderly exits to less flexible regimes are preceded by long regime duration, a decline in financial liabilities of the banking system, and an increase in official reserves. Exits to more flexible regimes are associated with both emerging market and other developing countries, and an increase in trade openness and government borrowing from banks. The results are robust to alternative sensitivity analyses and have reasonable predictive performance, confirming that economic and financial conditions and regime duration play important roles in determining the future course of exchange rate regimes.

Keywords: WP; government; flexible regime; exchange rate regime; regime transition; Pegged exchange rates; floating regimes; determinants of exits; currency crises; peg regime; government borrowing; borrowing from the banking system; band regime; Exchange rate arrangements; Exchange rate flexibility; Conventional peg; Crawling peg; Currency markets; Global; Western Europe (search for similar items in EconPapers)
Pages: 35
Date: 2003-07-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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