Fear of Floating Revisited

39 Pages Posted: 21 Nov 2012 Last revised: 9 Sep 2014

Date Written: December 14, 2012

Abstract

Analyses of the Fear of Floating are based on a misunderstanding of the nomenclature of the IMF’s de jure dataset and as a result have mapped most of the categories to their de facto counterparts in a spurious manner. This study introduces a new dataset of de jure exchange regime classifications and compares them with other de facto datasets, including an expansion of the Bubula and Ötker-Robe classifications, which this study also introduces. Using these comparisons, this study finds that de jure regimes tend to be correct, regardless of the de facto methodology used, and that the “fear of floating” and the “fear of fixing” are less widespread phenomena than previously seen. In contrast to previous scholarship, inconsistent de facto and de jure exchange rate arrangements are usually short-lived and seem not to arise from dual mandates. Further, stylized facts indicate that inconsistent de facto and de jure regimes, while effective when introduced, lose effectiveness with repeated use, as dynamic inconsistency theory predicts.

Keywords: exchange regimes, fear of floating, dynamic inconsistency

JEL Classification: F31, F33, O24

Suggested Citation

Anderson, Harald, Fear of Floating Revisited (December 14, 2012). Available at SSRN: https://ssrn.com/abstract=2178767 or http://dx.doi.org/10.2139/ssrn.2178767