How to exit from fixed exchange rate regimes?

Aşıcı A. A., Ivanova N., Wyplosz C.

INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, vol.13, no.3, pp.219-246, 2008 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 13 Issue: 3
  • Publication Date: 2008
  • Doi Number: 10.1002/ijfe.340
  • Journal Name: INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.219-246
  • Keywords: exchange rate regimes, currency crises, exchange rate policy, capital controls, macroeconomic policies
  • Istanbul Technical University Affiliated: Yes

Abstract

This paper improves upon the recently developed literature on exits from fixed exchange rate regimes in three ways: (1) It allows for two indicators for post-exit macroeconomic conditions, the change in the exchange rate and the change in the output gap; (2) it tests whether the distinction between orderly and disorderly exit is statistically justified, and concludes that it is not; (3) it deals with the sample selection problem. The results, subject to extensive sensitivity analysis, suggest that post-exits are better when depegging occurs in good macroeconomic conditions - an unnatural move for most policymakers - when world interest rates decline and in the presence of capital controls. Importantly, 'good' macroeconomic policies do not seem to help with post-exit performance. Copyright (c) 2007 John Wiley & Sons, Ltd.