Fear of Floating
64 Pages Posted: 8 Dec 2016 Last revised: 22 Dec 2016
Date Written: november 8, 2000
Many emerging market countries have suffered financial crises. One view blames soft pegs for these crises. Adherents of this view suggest that countries move to corner solutions—hard pegs or floating exchange rates. We analyze the behavior of exchange rates, reserves, and interest rates to assess whether there is evidence that country practice is moving toward corner solutions. We focus on whether countries that claim they are floating are indeed doing so. We find that countries that say they allow their exchange rate to float mostly do not—there seems to be an epidemic case of "fear of floating."
Keywords: reserves, exchange rates, fear of floating, central banks, interest rates
JEL Classification: E58, F31, F33, F41
Suggested Citation: Suggested Citation