How to Exit from Fixed Exchange Rate Regimes
39 Pages Posted: 17 Aug 2005
Date Written: July 2005
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 de-pegging occur in good macroeconomic conditions - an unnatural move for most policy-makers - 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.
Keywords: Exchange rate regimes, macroeconomic policy
JEL Classification: C14, C34, F30, F31, F41
Suggested Citation: Suggested Citation
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