Exchange Rate Regimes

1
Exchange Rate Regimes Jeffrey Frankel Harpel
Chair, Harvard University IMF Institute  
April 27, 2011
2
Topics to be covered

• I. Classifying countries by exchange rate regime
• Statistical inference of de facto regimes
• II. Advantages of fixed rates
• The trade-promoting effect of currency unions
  the case
• III. Advantages of floating rates
• IV. Which regime dominates?
• V. Additional factors for developing countries
• Emigrants remittances
• Financial development
• Terms-of-trade shocks
• Alternative nominal anchors
• Proposal for Product Price Targeting
• Appendices

PPT
3
I. Classification of exchange rate
regimesContinuum from flexible to rigid

• FLEXIBLE CORNER
• 1) Free float 2) Managed float
• INTERMEDIATE REGIMES
• 3) Target zone/band 4) Basket peg
• 5) Crawling peg 6) Adjustable peg
• FIXED CORNER
• 7) Currency board 8) Dollarization
• 9) Monetary union

4
Intermediate regimes

• target zone (band)
• Krugman-ERM type (with nominal anchor)
• Bergsten-Williamson type (FEER adjusted
  automatically)
• basket peg (weights can be either
  transparent or secret)
• crawling peg
• pre-announced (e.g., tablita)
• indexed (to fix real exchange rate)
• adjustable peg
• (escape clause, e.g., contingent
• on terms of trade or reserve loss)

5
De jure regime ? de facto as is by now
well-known

• Many countries that say they float, in fact
  intervene heavily in the foreign exchange
  market. 1
• Many countries that say they fix, in fact
  devalue when trouble arises. 2
• Many countries that say they target a basket of
  major currencies in fact fiddle with the weights.
  3
• 1 Fear of floating Calvo Reinhart (2001,
  2002) Reinhart (2000).
• 2 The mirage of fixed exchange rates
  Obstfeld Rogoff (1995)..
• 3 Parameters kept secret Frankel, Schmukler
  Servén (2000).

6
II. Economists offer de facto classifications,
placing countries into the true categories

• Important examples include Ghosh, Gulde Wolf
  (2000), Reinhart Rogoff (2004), Shambaugh
  (2004a),
• more to be cited.
• Tavlas, Dellas Stockman (2008) survey the
  literature.
• Unfortunately, these classification schemes
  disagree with each other as much as they
  disagree with the de jure classification! 1
• gt Something must be wrong. 1
  Bénassy-Quéré, et al (Table 5, 2004) Frankel
  (Table 1, 2004) and Shambaugh (2007).

7
Correlations Among Regime Classification Schemes
GGW Ghosh, Gulde Wolf. LY-S Levy-Yeyati
Sturzenegger. R-R Reinhart Rogoff

• Sample 47 countries. From Frankel, ADB, 2004.
  Table 3, prepared by M. Halac S.Schmukler.

8
Several things are wrong.
gt Something must be wrong.

• Difficulty 1Attempts to infer statistically a
  currencys flexibility from the variability of
  its exchange rate alone ignore that some
  countries experience greater shocks than others.
• That problem can be addressed by comparing
  exchange rate variability to foreign exchange
  reserve variability
• Calvo Reinhart (2002) Levy-Yeyati
  Sturzenegger (2003, 05).

9
Korea Singapore in 2010 took inflows mostly in
the form of reserves,while India Malaysia took
them mostly in the form of currency appreciation.
more-managed floating
less-managed floating (more appreciation-friend
ly)
GS Global ECS Research
10
In Latin America, renewed inflows
are reflected mostly as reserve accumulation in
Peru,
but as appreciation in Chile Colombia.

more-managed floating
less-managed floating (more appreciation-friend
ly)
Source GS Global ECS Research
11
This 1st approach can be phrased in terms of
Exchange Market Pressure

• Define ? EMP ? value of currency x ?
  reserves.
• ? EMP represents shocks in currency demand.
• Flexibility can be estimated as the propensity
  of the central bank to let shocks show up in the
  price of the currency (floating) ,vs. the
  quantity of the currency (fixed), or in between
  (intermediate exchange rate regime).
• x 1/MBase or sometimes the inverse relative
  variance.

12
In Asia since 2008, India, followed by Indonesia,
have had the greatest tendency to float, given
EMP Hong Kong Singapore the least, followed
by Malaysia China.
Goldman Sachs Global Economics Weekly 11/07 Feb.
16, 2011
13
Distillation of technique to infer flexibility

• When a shock raises international demand for the
  currency, does it show up as an appreciation, or
  as a rise in reserves?
• EMP variable appears on the RHS of the equation.
  The rise in the value of the currency appears
  on the left.
• A coefficient of 0 on EMP signifies a fixed E
  (no changes in the value of the currency),
• a coefficient of 1 signifies a freely floating
  rate (no changes in reserves) and
• a coefficient somewhere in between indicates a
  correspondingly flexible/stable intermediate
  regime.

14
Several things are wrong, continued.

• Difficulty 2 We shouldnt impose the choice
  of the major currency around which the country
  in question defines its value (often the ).
• It would be better to estimate endogenously
  whether the anchor currency is the , the , some
  other currency, or some basket of currencies.
• That problem has been addressed by a 2nd approach.

15

• Some currencies have basket anchors, often with
  some flexibility that can be captured either by a
  band (BBC) or by leaning-against-the-wind
  intervention.
• Most basket peggers keep the weights secret.
  They want to preserve a degree of freedom from
  prying eyes, whether to pursue
• less de facto flexibility, as China,
• or more, as with most others.

16
The 2nd approach in the de facto regime
literature estimates implicit basket weights

• To uncover the currency composition weights,
• regress changes in log H, the home currency
  value, against changes in log values of candidate
  currencies.
• Algebraically, if the value of the home currency
  is pegged to the values of currencies X1, X2,
  Xn, with weights equal to w1, w2, wn, then
• ? logH(t) c ? w(j) ? logX(j)
  (1)

17
The technique to estimate basket weights

• First examples Frankel (1993) and Frankel Wei
  (1994, 95).
• More Bénassy-Quéré (1999), Ohno
  (1999), Bénassy-Quéré, Coeuré Mignon (2004).

• Application to the RMB, post 7/05
• Shah, Zeileis Patnaik (2005), Eichengreen
  (2006), Ogawa (2006), Yamazaki (2006),
  Frankel-Wei (2006, 07), Frankel (2009).

18
Implicit basket weights method

• -- regress ?value of local currency against ?
  values of major currencies -- continued.
• Null Hypotheses Close fit gt a peg.
• Coefficient of 1 on gt peg.
• Or significant weights on other currencies
  gt basket peg.
• But if the test rejects tight basket peg, what
  is the Alternative Hypothesis?

Professor Jeffrey Frankel
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Several things are wrong, continued.

• Difficulty 3 The 2nd approach
  (inferring the anchor currency or basket) does
  not allow for flexibility around that anchor.
• Inferring de facto weights and inferring de facto
  flexibility are equally important,
• whereas most authors do only one or the other.

Professor Jeffrey Frankel
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The synthesis technique

• gt We need a technique that can cover both
  dimensions inferring weights and inferring
  flexibility.
• A synthesis of the two approaches for
  statistically estimating de facto exchange rate
  regimes (1) the technique that we have used in
  the past to estimate implicit de facto weights
  when the hypothesis is a basket peg with little
  flexibility. (2) the technique used by
  others to estimate de facto exchange rate
  flexibility when the hypothesis is an anchor to
  the , but with variation around that anchor.
  

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Synthesis equation

• ? logH(t) c ? w(j) ?logX(j, t)
• ß ? EMP(t) u(t) (2)
• where ? EMP(t) ?logH (t) ?Res (t) / MB
  (t).

22
Several things are wrong, continued.

• Difficulty 4 All these approaches are plagued
  by the problem that many countries frequently
  change regimes or change parameters.
• E.g., Chiles BBC changed parameters 18 times in
  18 years (1980s-90s)
• Year-by-year estimation wont work, because
  parameter changes come at irregular intervals.
• Chow test wont work, because one does not
  usually know the candidate dates.
• Solution Apply Bai-Perron (1998, 2003)
  technique for endogenous estimation of
  structural break point dates.

Professor Jeffrey Frankel
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Statistical estimation of de facto exchange rate
regimes
Estimation of implicit weights in basket peg
Frankel (1993), Frankel Wei (1993, 94, 95)
Ohno (1999), F, Schmukler Servén (2000),
Bénassy-Quéré (1999, 2006)
Estimation of degree of flexibility in managed
float Calvo Reinhart (2002) Levi-Yeyati
Sturzenegger (2003)
Application to RMBEichengreen (06), Ogawa (06),
F Wei (07)

• Synthesis Estimation of De Facto Exchange
  Rate Regimes Synthesis of the Techniques for
  Inferring Flexibility and Basket Weights
  Frankel Wei (IMF SP 2008)

Application to RMB Frankel (2009)
Econometric estimation of structural break
points Bai Perron (1998, 2003)
Allow for parameter variation Estimation of De
Facto Flexibility Parameter and Basket Weights in
Evolving Exchange Rate Regimes F Xie (AER,
2010)
Professor Jeffrey Frankel
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Bottom line on classifying exchange rate regimes

• It is genuinely difficult to classify most
  countries de facto regimes intermediate
  regimes that change over time.
• Need techniques
• that allow for intermediate regimes (managed
  floating and basket anchors)
• and that allow the parameters to change over time.

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II. Advantages of fixed rates

• Encourage trade lt lower exchange risk.
• Theoretically, can hedge risk. But costs of
  hedging
• missing markets, transactions costs, and risk
  premia.
• Empirically Exchange rate volatility ? gt
  trade ? ?
• - Shows up in cross-section evidence,
• especially with small less developed
  countries. - Borders, e.g., Canada-US
  McCallum-Helliwell (1995-98)
  Engel-Rogers (1996).
• - Currency unions Rose (2000).

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Advantages of fixed rates, cont.

• 2) Encourage investment
• lt cut currency premium out of interest rates
• 3) Provide nominal anchor for monetary policy
• Barro-Gordon model of time-consistent
  inflation-fighting
• But which anchor?
• Exchange rate target vs.
• Alternatives such as Inflation Targeting
• 4) Avoid competitive depreciation
• 5) Avoid speculative bubbles that afflict
  floating. (If variability were all fundamental
  real exchange rate risk, and no bubbles, then
  fixing the nominal rate would mean it would just
  pop up in prices instead.)

27

• Influential finding of Rose (2000) the boost to
  bilateral trade from currency unions is
• significant,
• boost from FTAs,
• larger (3-fold) than had been thought.
• Many others have advanced critiques of Rose
  research, re
• endogeneity of currency decision,
• small countries ? large,
• missing variables
• implausibility of sheer magnitude.
• Estimated magnitudes are often smaller, but the
  basic finding has withstood perturbations and
  replications well. ii/
• Parsley-Wei currency effect explains border
  effects.
• ii E.g., Rose van Wincoop (2001) Tenreyro
  Barro (2003). Survey Baldwin (2006)

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• Endogeneity of OCA criteria
• Trade responds positively to currency regime
• A pairs cyclical correlation rises too(rather
  than falling, as under Eichengreen-Krugman
  hypothesis) Frankel Rose, EJ

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III. Advantages of floating rates

1. Monetary independence
2. Automatic adjustment to trade shocks
3. Retain seignorage
4. Retain Lender of Last Resort ability
5. Avoiding crashes that hit pegged rates. (This is
   an advantage especially if origin of speculative
   attacks is multiple equilibria, not
   fundamentals.)

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IV. Which dominate advantages of fixing or
advantages of floating?Performance by category
is inconclusive.

• To over-simplify findings of 3 important studies
  
• Ghosh, Gulde Wolf hard pegs work best
• Sturzenegger Levy-Yeyati floats perform
  best
• Reinhart-Rogoff limited
  flexibility is best
• Why the different answers?
• Conditioning factors.
• The de facto schemes do not correspond to each
  other.

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Which dominate advantages of fixing or
advantages of floating? Answer depends on
circumstances, of course No one exchange rate
regime is rightfor all countries or all times.

• Traditional criteria for choosing - Optimum
  Currency Area. Focus is on trade and
  stabilization of business cycle.
• 1990s criteria for choosing Focus is on
  financial markets and stabilization of
  speculation.

32
Optimum Currency Area Theory (OCA) Broad
definition An optimum currency area is a region
that should have its own currency and own
monetary policy. This definition can be given
more content, by first observing that smaller
units tend to be more open and integrated. Then
an OCA can be defined as a region that is
neither so small open that it would be better
off pegging its currency to a neighbor, nor so
large that it would be better off splitting into
sub-regions with different currencies.
33
Optimum Currency Area criteria for fixing
exchange rate

• Small size openness
• because then advantages of fixing are large.
• Symmetry of shocks
• because then giving up monetary independence is a
  small loss.
• Labor mobility
• because then it is possible to adjust to shocks
  even without ability to expand money, cut
  interest rates or devalue.
• Fiscal transfers in a federal system
• because then consumption is cushioned in a
  downturn.

34
Popularity in the 1990s of the
institutionally-fixed corner

• currency boards
• (e.g., Hong Kong, 1983- Lithuania, 1994-
• Argentina, 1991-2001 Bulgaria, 1997-
• Estonia 1992- Bosnia, 1998- )
• dollarization
• (e.g, Panama, El Salvador, Ecuador)
• monetary union
• (e.g., EMU, 1999)

35
1990s criteria for the firm-fix corner
suiting candidates for currency boards or union
(e.g. Calvo)
Regarding credibility

• a desperate need to import monetary stability,
  due to
• - history of hyperinflation,
• - absence of credible public institutions,
• - location in a dangerous neighborhood, or
• - large exposure to nervous international
  investors
• a desire for close integration with a
  particular neighbor or trading partner

• Regarding other initial conditions
• an already-high level of private dollarization
• high pass-through to import prices
• access to an adequate level of reserves
• the rule of law.

36
V. Three additional considerations, particularly
relevant to developing countries

• (i) Emigrants remittances
• (ii) Level of financial development
• (iii) External terms of trade shocks,
• alternative nominal anchors, and the proposal
  for Product Price Targeting.

37
(i) I would like to add another criterionto the
traditional OCA list Cyclically-stabilizing
emigrants remittances.

• If country S has sent many immigrants to country
  H, and their remittances are correlated with the
  differential in growth or employment in S versus
  H, this strengthens the case for S pegging to H.
• Why? It helps stabilize Ss current account
  even when S has given up ability to devalue.
• But are remittances stabilizing?
• as private capital flows promise to be in theory,
  but fail in practice?

38
(i) I would like to add another criterionto the
traditional OCA list Cyclically-stabilizing
emigrants remittances.

• If country S has sent immigrants to country H,
  are their remittances correlated with the
  differential in growth or employment in S versus
  H?
• Apparently yes. (Frankel, Are Bilateral
  Remittances Countercyclical? 2011)
• This strengthens the case for S pegging to H.
• Why? It helps stabilize Ss current account
  even when S has given up ability to devalue.

39
(ii) Level of financial development Aghion,
Bacchetta, Ranciere Rogoff (2005)

• Fixed rates are better for countries at
  low levels of financial
  development because markets
  are thin gt benefits of accommodating real
  shocks are outweighed by costs of financial
  shocks.
• When financial markets develop, exchange
  flexibility becomes more attractive.
• Estimated threshold Private Credit/GDP gt 40.

40
Level of financial development, cont. Husain,
Mody Rogoff (2005)

• For poor countries with low capital mobility,
  pegs work
• in the sense of being more durable
• delivering low inflation.
• For richer more financially developed
  countries, flexible rates work better
• in the sense of being more durable
• delivering higher growth without inflation

41
(iii) External Shocks

• An old wisdom regarding the source of shocks
• Fixed rates work best if shocks are mostly
  internal demand shocks (especially monetary)
• floating rates work best if shocks tend to be
  real shocks (especially external terms of
  trade).
• One case of supply shocks natural disasters
• E.g., Ramcharan (2007). .
• Most common case of real shocks trade
• Edwards Levy-Yeyati (2003) Empirically,
  among peggers terms-of-trade shocks are amplified
  and long-run growth falls, as compared to
  flexible-rate countries.

42
Terms-of-trade variability returns

• Prices of crude oil and other agricultural
  mineral commodities hit record highs during the
  decade 2001-2011.
• gt Favorable terms of trade shocks for some
  (oil producers South America, Africa,
  etc.)
• gt Unfavorable terms of trade shock for others
  (oil importers, such as Asia)..

43
Nominal anchors for monetary policy

• If the exchange rate is not to be nominal anchor,
• something else must be
• especially where institutions lack credibility
• 2 alternatives for nominal anchor
• have had ardent supporters in the past, but are
  no longer in the running
• the price of gold, as 19th century gold standard
  and
• the money supply, the choice of monetarists.
• Inflation targeting
• Orthodox implementation the CPI
• Unorthodox versions for countries with volatile
  terms of trade

IT
PPT
44
Fashions in international currency policy

• 1980-82 Monetarism (target the money
  supply)
• 1984-1997 Fixed exchange rates (including
  currency boards)
• 1993-2001 The corners hypothesis
• 1998-2009 Inflation targeting ( currency
  float)
• became the new conventional wisdom
• Among academic economists
• Among central bankers
• At the IMF

45
Fashions in international currency policy

• 1980-82 Monetarism (target the money
  supply)
• 1984-1997 Fixed exchange rates (incl.
  currency boards)
• 1993-2001 The corners hypothesis
• 1998-2008 Inflation targeting ( currency
  float)
• became the new conventional wisdom
• Among academic economists
• among central bankers
• and at the IMF

IT
Professor Jeffrey Frankel
46
After the 1990s EM Crises, Inflation
Targetingspread from rich countries to emerging
markets
IT
Source IMF Survey. October 23, 2000. Andrea
Schaechter, Mark Stone, Mark Zelmer in the IMF,
Monetary and Exchange Affairs Dept. Online at
http//www.imf.org/external/pubs/ft/survey/2000/10
2300.pdfThe background papers for the high-level
seminar Implementing Inflation Targets, held in
Washington in March 2000, are available on the
IMF Website http//www.imf.org/external/pubs/ft/s
eminar/2000/targets/index.htm
47

• The shocks of 2008-2011 showed disadvantages to
  Inflation Targeting,
• analogously to how the EM crises of the
  1994-2001showed disadvantages of exchange rate
  targeting.
• One disadvantage of IT no response to asset
  price bubbles.
• Another disadvantage
• It gives the wrong answer in case of trade
  shocks
• E.g., it says to tighten money appreciate in
  response to a rise in oil import prices
• It does not allow monetary tightening
  appreciation in response to a rise in world
  prices of export commodities.
• That is backwards.

IT
Professor Jeffrey Frankel
48
6 proposed nominal targets and the Achilles heel
of each
IT
Professor Jeffrey Frankel
49
Proposal for Product Price Targeting
PPT

• Intended for countries with volatile terms of
  trade, e.g., those specialized in commodities.
• The authorities stabilize the currency in terms
  of a basket that gives heavy weight to prices of
  its commodity exports, rather than to the or
  or CPI.
• The regime combines the best of both worlds
• The advantage of automatic accommodation to
  terms of trade shocks, together with
• the advantages of a nominal anchor.

Professor Jeffrey Frankel
50
In practice, most IT proponents agree central
banks should not tighten to offset oil price
shocks

• They want focus on core CPI, excluding food
  energy.
• But
• food energy consumption do not cover all supply
  shocks.
• Use of core CPI sacrifices some credibility
• If core CPI is the explicit goal ex ante, the
  public feels confused.
• If it is an excuse for missing targets ex post,
  the public feels tricked.
• The threat to credibility is especially strong
  where there are historical grounds for believing
  that government officials fiddle with the CPI
  for political purposes.
• Perhaps for that reason, IT central banks
  apparently do respond to oil shocks by
  tightening/appreciating.

51
LAC Countries Current Regimes and Monthly
Correlations of Exchange Rate Changes (/local
currency) with Import Price Changes
Table 1
Table 1 LACA Countries Current Regimes and Monthly Correlations of Exchange Rate Changes (/local currency) with Dollar Import Price Changes Table 1 LACA Countries Current Regimes and Monthly Correlations of Exchange Rate Changes (/local currency) with Dollar Import Price Changes Table 1 LACA Countries Current Regimes and Monthly Correlations of Exchange Rate Changes (/local currency) with Dollar Import Price Changes Table 1 LACA Countries Current Regimes and Monthly Correlations of Exchange Rate Changes (/local currency) with Dollar Import Price Changes Table 1 LACA Countries Current Regimes and Monthly Correlations of Exchange Rate Changes (/local currency) with Dollar Import Price Changes Table 1 LACA Countries Current Regimes and Monthly Correlations of Exchange Rate Changes (/local currency) with Dollar Import Price Changes
Import price changes are changes in the dollar price of oil. Import price changes are changes in the dollar price of oil. Import price changes are changes in the dollar price of oil. Import price changes are changes in the dollar price of oil. Import price changes are changes in the dollar price of oil. Import price changes are changes in the dollar price of oil.
  Exchange Rate Regime Monetary Policy 1970-1999 2000-2008 1970-2008
ARG Managed floating Monetary aggregate target -0.0212 -0.0591 -0.0266
BOL Other conventional fixed peg Against a single currency -0.0139 0.0156 -0.0057
BRA Independently floating Inflation targeting framework (1999) 0.0366 0.0961 0.0551
CHL Independently floating Inflation targeting framework (1990) -0.0695 0.0524 -0.0484
CRI Crawling pegs Exchange rate anchor 0.0123 -0.0327 0.0076
GTM Managed floating Inflation targeting framework -0.0029 0.2428 0.0149
GUY Other conventional fixed peg Monetary aggregate target -0.0335 0.0119 -0.0274
HND Other conventional fixed peg Against a single currency -0.0203 -0.0734 -0.0176
JAM Managed floating Monetary aggregate target 0.0257 0.2672 0.0417
NIC Crawling pegs Exchange rate anchor -0.0644 0.0324 -0.0412
PER Managed floating Inflation targeting framework (2002) -0.3138 0.1895 -0.2015
PRY Managed floating IMF-supported or other monetary program -0.023 0.3424 0.0543
SLV Dollar Exchange rate anchor 0.1040 0.0530 0.0862
URY Managed floating Monetary aggregate target 0.0438 0.1168 0.0564
Oil Exporters Oil Exporters        
COL Managed floating Inflation targeting framework (1999) -0.0297 0.0489 0.0046
MEX Independently floating Inflation targeting framework (1995) 0.1070 0.1619 0.1086
TTO Other conventional fixed peg Against a single currency 0.0698 0.2025 0.0698
VEN Other conventional fixed peg Against a single currency -0.0521 0.0064 -0.0382
Chile declared an inflation target as early as 1990 but it also had an exchange rate target, under an explicit band-basket-crawl regime, until 1999.  Chile declared an inflation target as early as 1990 but it also had an exchange rate target, under an explicit band-basket-crawl regime, until 1999.  Chile declared an inflation target as early as 1990 but it also had an exchange rate target, under an explicit band-basket-crawl regime, until 1999.  Chile declared an inflation target as early as 1990 but it also had an exchange rate target, under an explicit band-basket-crawl regime, until 1999.  Chile declared an inflation target as early as 1990 but it also had an exchange rate target, under an explicit band-basket-crawl regime, until 1999.  Chile declared an inflation target as early as 1990 but it also had an exchange rate target, under an explicit band-basket-crawl regime, until 1999. 
IT coun-tries show correl-ations gt 0.
52
The 4 inflation-targeters in Latin Americashow
correlation (currency value in , import prices
in )

• gt 0
• gt correlation before they adopted IT
• gt correlation shown by non-IT Latin American
  countries.

53
Why is the correlation between the import price
and the currency value revealing?

• The currency of an oil importer should not
  respond to an increase in the world price of oil
  by appreciating, to the extent that these
  central banks target core CPI .
• If anything, floating currencies should
  depreciate in response to such an adverse terms
  of trade shock.
• When these IT currencies respond by appreciating
  instead, it suggests that the central bank is
  tightening monetary policy to reduce upward
  pressure on the CPI,
• the opposite of accommodating the terms of trade
  shock.

54
PPT
Recap of Product Price Targeting
Target an index of domestic production prices.
1 The important point include export
commodities in the index and exclude import
commodities, whereas the CPI does it the other
way around. 1 Frankel (2011).
Professor Jeffrey Frankel
55
(No Transcript)
56
Readings
Calvo, Guillermo, and Carmen Reinhart, 2002,
Fear of Floating, Quarterly J. of Economics,
May. Frankel, Jeffrey, 2003, Experience of and
Lessons from Exchange Rate Regimes in Emerging
Economies, in Monetary and Financial Cooperation
in East Asia, ADB, Macmillan. Frankel, 2011b, A
Comparison of Monetary Anchor Options, Including
Product Price Targeting, for Commodity-Exporters
in Latin America, for Economia. NBER WP
16362. Frankel, and Shang-Jin Wei, 2008,
Estimation of De Facto Exchange Rate Regimes 
Synthesis of  The Techniques for Inferring
Flexibility and Basket Weights, IMF Staff
Papers. Frankel, and Daniel Xie, 2010,
Estimation of De Facto Flexibility Parameter and
Basket Weights in Evolving Exchange Rate
Regimes, American Economic Review Papers
Proceedings 100, May. Ghosh, Atish, Anne-Marie
Gulde, and Holger C. Wolf, 2000, Currency
Boards More Than a Quick Fix? Economic Policy
31. Rogoff, Kenneth, and Maurice Obstfeld, 1995,
The Mirage of Fixed Exchange Rates, J. of Econ.
Perspectives 9, No. 4 (Fall). Rose, Andrew, One
Money, One Market Estimating the Effect of
Common Currencies on Trade, Economic Policy,
2000. Taylor, Alan, 2002, A Century of
Purchasing Power Parity, Rev. Ec. Statistics,
84.
57
Additional Readings
Arteta, Carlos, 2005, Exchange Rate Regimes and
Financial Dollarization Does Flexibility Reduce
Currency Mismatches, Topics in Macroeconomics 5,
no. 1, Article 10. Calvo, Guillermo, and Carlos
Vegh, 1994, Inflation Stabilization and Nominal
Anchors, Contemporary Economic Policy, 12
(April). Fischer, Stanley. 2001, Exchange Rate
Regimes Is the Bipolar View Correct? Journal of
Economic Perspectives 15 . Frankel, Jeffrey,
2003, A Proposed Monetary Regime for Small
Commodity-Exporters Peg the Export Price
(PEP), International Finance,
Spring.Frankel, Jeffrey, and Andrew Rose, 1998,
The Endogeneity of the Optimum Currency Area
Criterion, The Economic Journal. ___, and ___,
2002, An Estimate of the Effect of Common
Currencies on Trade and Income,
Q.J.Ec.. Friedman, Milton, 1953, The Case for
Flexible Exchange Rates, in Essays in Positive
Economics. Husain, Asim, Ashoka Mody Kenneth
Rogoff, 2005, Exchange Rate Regime Durability
and Performance in Developing Vs. Advanced
Economies JME 52 , Jan., 35-64
58
Additional Readings
Levy-Yeyati, Eduardo, and Federico Sturzenegger,
2003, To Float or to Trail Evidence on the
Impact of Exchange Rate Regimes, American
Economic Review, 93, No. 4, Sept. . McKinnon,
Ronald, 1963, Optimum Currency Areas, American
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