IMF Working Papers

Evolution and Performance of Exchange Rate Regimes

Author/Editor:

Aasim M. Husain ; Ashoka Mody ; Nienke Oomes ; Robin Brooks ; Kenneth Rogoff

Publication Date:

December 1, 2003

Electronic Access:

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Summary:

Using recent advances in the classification of exchange rate regimes, this paper finds no support for the popular bipolar view that countries will tend over time to move to the polar extremes of free float or rigid peg. Rather, intermediate regimes have shown remarkable durability. The analysis suggests that as economies mature, the value of exchange rate flexibility rises. For countries at a relatively early stage of financial development and integration, fixed or relatively rigid regimes appear to offer some anti-inflation credibility gain without compromising growth objectives. As countries develop economically and institutionally, there appear to be considerable benefits to more flexible regimes. For developed countries that are not in a currency union, relatively flexible exchange rate regimes appear to offer higher growth without any cost in credibility.

Series:

Working Paper No. 2003/243

Subject:

Emerging and frontier financial markets Exchange rate arrangements Exchange rate flexibility Exchange rates Financial markets Foreign exchange Inflation Prices