TY  - JOUR
AU  - Klein,Michael W.
AU  - Shambaugh,Jay C.
TI  - The Nature of Exchange Rate Regimes
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12729
PY  - 2006
Y2  - December 2006
UR  - http://www.nber.org/papers/w12729
L1  - http://www.nber.org/papers/w12729.pdf
N1  - Author contact info:
Michael W. Klein
Fletcher School
Tufts University
Medford, MA 02155
Tel: (617) 627-2718
Fax: (617) 627-3712
E-Mail: michael.klein@tufts.edu

Jay C. Shambaugh
George Washington University
Elliot School for International Affairs
1957 E Street, N.W. Suite 502
Washington, D.C. 20052
Tel:  202/994-9208
E-Mail: jshambaugh@gwu.edu
M3  - presented at "International Finance and Macroeconomics", October 27, 2006
AB  - 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.
ER  -