Working Paper: CEPR ID: DP5141
Authors: Ahmet Atil Asici; Nadezhda Ivanova; Charles Wyplosz
Abstract: This paper improves upon the recently developed literature on exits from fixed exchange rate regimes in three ways: 1) It allows for two indicators for post-exit macroeconomic conditions, the change in the exchange rate and the change in the output gap; 2) it tests whether the distinction between orderly and disorderly exit is statistically justified, and concludes that it is not; 3) it deals with the sample selection problem. The results, subject to extensive sensitivity analysis, suggest that post-exits are better when de-pegging occur in good macroeconomic conditions ? an unnatural move for most policy-makers ? when world interest rates decline and in the presence of capital controls. Importantly, ?good? macroeconomic policies do not seem to help with post-exit performance.
Keywords: exchange rate regimes; macroeconomic policy
JEL Codes: C14; C34; F30; F31; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| sound macroeconomic policies (E60) | probability of successful exit (C41) |
| adequate banking systems (G21) | probability of successful exit (C41) |
| capital inflows (F21) | probability of successful exit (C41) |
| good macroeconomic policies (E60) | post-exit performance (Y60) |
| macroeconomic indicators (inflation, declining foreign exchange reserves) (F31) | pain of exits (Y60) |
| capital controls (F38) | likelihood of exits (J63) |
| capital controls (F38) | threat level of exits (Y50) |