Long-Run Determinants of Exchange Rate Regimes: A Simple Sensitivity Analysis

PART IV (A & B)Presented by: Asma’a Alajmi

Exchange Rate Regime Classification

Most pervious studies have analyzed an official classification of exchange regimes entirely based upon countries’ self-reporting, published by the International Monetary Fund in its annual report on “Exchange Arrangements and Exchange Restrictions”.

Beginning with the 1999 issue, the IMF classification has begun incorporating the IMF staff’s views, “correcting” some cases in which the de facto system was clearly different than what had been reported by the authorities.

Results presented based on the IMF classifications for the end of 2000 and the end of 1990 (revised), which make adjustments based upon the IMF staff’s views.

External Source “IMF”

De Facto Classification of Exchange Rate Regimes and Monetary Policy Framework

http://www.imf.org/external/np/mfd/er/2006/eng/0706.htm

IMF classification

For the IMF classification at end-2000 we group regimes as follows:

“hard-pegs”: including currency unions, currency boards and countries with no separate legal tender.

“Floats”: including managed floats and independent floats.

“Intermediates”: including all others, i.e., conventional pegs, crawling pegs, crawling bands and basket pegs.

IMF classification

As a variant on this approach, we define a group of “pure floats” consisting of independent floats only and shift managed floats into the residual group of ”intermediates”

For the end -1990 (whether using the original classification, or a revised classification incorporating the staff’s views on de facto regimes at the time), we group exchange rate regimes as:

“pegs”: including not only hard pegs, but also conventional pegs.

“floats”: including managed floats and independent floats

“intermediates”: including all others, i.e. crawling pegs, crawling bands and basket pegs.

Levy-Yeyati and Sturzenegger (LYS,1999)

An alternative classification, entirely based upon deeds rather than words, has been produced by Levy-Yeyati and Sturzenegger (LYS,1999), who apply cluster analysis to countries observed volatility of exchange rates and international reserves.

The cluster with high volatility of reserves and low volatility of exchange rates identifies the group of fixers.

The cluster with low volatility of reserves and high volatility of exchange rates identifies the group of floaters.

Exchange Rate Regime Classification

To summarize, we consider the following five classifications/years:

(1) IMF for end-2000

(2) IMF for end-1990, revised on the basis of the IMF staff’s view on de facto regimes

(3) IMF for end-1990, original classification based upon reporting only

(4) LYS for 1999

(5) LYS for 1990

Sample of Countries

Sample includes all countries for which data are available.

Depending on the set of explanatory variables, main regression include between 75 and 130 countries for the IMF classification and between 45 and 75 countries for the LYS classification.

Any Questions?

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