Exits from Heavily Managed Exchange Rate Regimes

Author/Editor:

Enrica Detragiache ; Eisuke Okada ; Ashoka Mody

Publication Date:

February 1, 2005

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

A widely held nostrum is that countries should exit heavily managed exchange rate regimes when the going is good, rather than when the exchange rate is under pressure to depreciate. Have countries followed this advice in practice? And, if so, how good has the going been? We find that in the past 25 years or so, almost all exits to more flexible regimes were followed by a depreciation of the exchange rate, and that exits were about evenly divided between disorderly and orderly cases. A logit econometric model, indicates that the general circumstances of orderly and disorderly exits have been broadly similar: an overvalued real exchange rate, falling reserves, a difficult fiscal position, and high world interest rates. Wellestablished pegs were less likely to end.

Series:

Working Paper No. 2005/039

Subject:

Exchange rate arrangements Exchange rate flexibility Exchange rates Managed exchange rates Real exchange rates

English

Publication Date:

February 1, 2005

ISBN/ISSN:

9781451860580/1018-5941

Stock No:

WPIEA2005039

Pages:

24

Please address any questions about this title to publications@imf.org