Exits from Heavily Managed Exchange Rate Regimes

25 Pages Posted: 15 Apr 2005

See all articles by Enrica Detragiache

Enrica Detragiache

International Monetary Fund (IMF) - European Department

Ashoka Mody

International Monetary Fund (IMF) - Research Department

Eisuke Okada

International Monetary Fund (IMF) - Research Department

Date Written: February 2005

Abstract

A widely held nostrum is that countries should exit heavily managed exchange rate regimes when the going is good, rather than when the exchange rate is under pressure to depreciate. In practice, have countries followed this advice in practice? And, if so, how good has the going been? We find that in the past 25 years or so, almost all exits to more flexible regimes were followed by a depreciation of the exchange rate, and that exits were about evenly divided between disorderly and orderly cases. A logit econometric model, indicates that the general circumstances of orderly and disorderly exits have been broadly similar: an overvalued real exchange rate, falling reserves, a difficult fiscal position, and high world interest rates. Well-established pegs were less likely to end.

Keywords: Exchange rates, orderly and disorderly exits

JEL Classification: F34

Suggested Citation

Detragiache, Enrica and Mody, Ashoka and Okada, Eisuke, Exits from Heavily Managed Exchange Rate Regimes (February 2005). IMF Working Paper No. 05/39. Available at SSRN: https://ssrn.com/abstract=688447

Enrica Detragiache (Contact Author)

International Monetary Fund (IMF) - European Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Ashoka Mody

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-9617 (Phone)
202-589-9617 (Fax)

HOME PAGE: http://www.amody.com

Eisuke Okada

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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