Are Pegged and Intermediate Regimes More Crisis Prone?
This paper provides evidence on the susceptibility of different types of exchange rate regimes to currency crises during 1990-2001. It explores the incidence of crises, identified as episodes of severe exchange market pressure, to seek evidence on whether pegged regimes are more crisis prone than floating regimes and on whether certain types of pegged regimes are more crisis prone than others. The paper finds that pegged regimes, as a whole, have been characterized by a higher incidence of crises than floating regimes, for countries that are more integrated with international capital markets; and that intermediate regimes (mainly soft pegs and tightly-managed floating regimes) have been more crisis prone than both hard pegs and other floating regimes-a view consistent with the bipolar view of exchange rate regimes. The degree of crisis proneness seems to be broadly similar across different types of intermediate regimes.
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alternative exchange backward looking crawling band no change basket no change bipolar view CFA franc CFA franc devaluation conventional fixed pegs crawling no change crisis proneness currency boards currency crises currency no change currency union depreciation and interest depreciation and reserve Devaluation and reserve EMP index Exchange rate depreciation exchange rate regimes fixed peg float no change float Sharp depreciation forward looking crawling frequency of crises hyperinflation identified independently float Sharp interest rate rise intermediate regimes International Monetary Fund Jan-94 currency union looking crawling peg losses in previous managed float Sharp Monthly data Odds Ratio peg to basket percent pressure index previous months prone to crises rate and reserve regime CFA franc regime Depreciation regime Devaluation regime Sharp depreciation reserve loss rise in interest Russian ruble Sharp reserve loss standard deviation tightly managed float types of intermediate U.S. dollar U.S. dollar thereafter union no change weighted average ż ż ż