TY  - JOUR
AU  - Frankel,Jeffrey A.
AU  - Xie,Daniel
TI  - Estimation of De Facto Flexibility Parameter and Basket Weights in Evolving Exchange Rate Regimes
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15620
PY  - 2009
Y2  - December 2009
UR  - http://www.nber.org/papers/w15620
L1  - http://www.nber.org/papers/w15620.pdf
N1  - Author contact info:
Jeffrey A. Frankel
Kennedy School of Government
Harvard University
79 JFK Street
Cambridge, MA 02138
Tel: 617/496-3834
Fax: 617/496-5747
E-Mail: jeffrey_frankel@harvard.edu

Daniel Xie
Peterson Institute for International Economics
1750 Massachusetts Avenue, NW
Washington, DC 20036
E-Mail: dxie@piie.com
AB  - A new technique for estimating countries’ de facto exchange rate regimes synthesizes two approaches.  One approach estimates the implicit de facto basket weights in an OLS regression of the local currency value rate against major currency values.  Here the hypothesis is a basket peg with little flexibility.  The second estimates the de facto degree of exchange rate flexibility by observing how exchange market pressure is allowed to show up. Here the hypothesis is an anchor to the dollar or some other single major currency, but with a possibly substantial degree of exchange rate flexibility around that anchor.  It is important to have available a technique that can cover both dimensions:  inferring anchor weights and the flexibility parameter.   We test the synthesis technique on a variety of fixers, floaters, and basket peggers.   We find that real world data demand a statistical technique that allows parameters and regimes to shift frequently.  Accordingly we here take the next step in estimation of de facto exchange rate regimes: endogenous estimation of parameter breakpoints, following Bai and Perron.
ER  -