NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Nature of Exchange Rate Regimes

Michael W. Klein, Jay C. Shambaugh

NBER Working Paper No. 12729
Issued in December 2006
NBER Program(s):   IFM

The impermanence of fixed exchange rates has become a stylized fact in international finance. The combination of a view that pegs do not really peg with the "fear of floating" view that floats do not really float generates the conclusion that exchange rate regimes are, in practice, unimportant for the behavior of the exchange rate. This is consistent with evidence on the irrelevance of a country's choice of exchange rate regime for general macroeconomic performance. Recently, though, more studies have shown the exchange rate regime does matter in some contexts. In this paper, we attempt to reconcile the perception that fixed exchange rates are only a "mirage" with the recent research showing the effects of fixed exchange rates on trade, monetary autonomy, and growth. First we demonstrate that, while pegs frequently break, many do last and those that break tend to reform, so a fixed exchange rate today is a good predictor that one will exist in the future. Second, we study the exchange rate effect of fixed exchange rates. Fixed exchange rates exhibit greater bilateral exchange rate stability today and in the future. Pegs also display somewhat lower multilateral volatility.

download in pdf format
   (328 K)

email paper

This paper is available as PDF (328 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w12729

Users who downloaded this paper also downloaded these:
Reinhart and Rogoff w8963 The Modern History of Exchange Rate Arrangements: A Reinterpretation
Frankel w10032 Experience of and Lessons from Exchange Rate Regime in Emerging Economies
Klein and Shambaugh w10696 Fixed Exchange Rates and Trade
Ghosh, Gulde, Ostry, and Wolf w5874 Does the Nominal Exchange Rate Regime Matter?
Alesina and Wagner w9809 Choosing (and reneging on) exchange rate regimes
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us