Flexing Your Muscles: Abandoning a Fixed Exchange Rate for Greater Flexibility

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We identify 51 instances since 1957 when an economy abandoned a fixed exchange rate for greater flexibility and saw its currency appreciate or remain broadly unchanged. These economies experienced a wide variety of macroeconomic responses. Those with high investment rates and rapidly growing trade experienced declines in growth, while more open economies and countries with more international reserves tended to experience falls in inflation. These patterns have obvious implications for the current economic circumstances and prospects of China.