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How to exit from fixed exchange rate regimes?
Author(s) -
AŞici Ahmet Atil,
Ivanova Nadezhda,
Wyplosz Charles
Publication year - 2008
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.340
Subject(s) - economics , exchange rate , fixed exchange rates , exchange rate regime , monetary economics , sample (material) , econometrics , macroeconomics , selection (genetic algorithm) , capital (architecture) , thermodynamics , history , physics , archaeology , artificial intelligence , computer science
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 © 2007 John Wiley & Sons, Ltd.