Do “Flexible” Exchange Rates of Developing Countries Behave Like the Floating Exchange Rates of Industrialized Countries?

IMF Working Papers, May 1, 2002

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The paper examines the behavior of daily spot exchange rates for a sample of industrialized countries generally considered to be floating with only occasional official foreign exchange market intervention.
It compares that behavior to the exchange rates of a sample of sixteen developing countries whose regimes are often classified as being “flexible”.
Considerable differences in the way these developing countries’ exchange rate regimes operate are apparent from the daily data.
Some developing countries share similarities with the regimes of the industrialized countries.
Other developing countries demonstrate regime shifts and other marked discontinuities.

Daily spot exchange rate behavior for industrialized "floating" regimes is used as the benchmark for comparison.
The developing-country sample (n = 16) exhibits heterogeneity:
- Subset showing similarities to industrialized floating regimes.
- Subset exhibiting regime shifts and marked discontinuities in daily exchange rate data.
The analysis highlights that classification of a developing country’s regime as “flexible” may mask important differences observable at daily frequency.

Frequency: daily spot exchange rates.
Samples:
- Industrialized countries: described as generally floating with only occasional official foreign exchange market intervention.
- Developing countries: sample of sixteen countries often classified as “flexible”.
Page length: 38 pages.