Working Paper: NBER ID: w14016
Authors: Jeffrey A. Frankel; Shangjin Wei
Abstract: The paper offers a new approach to estimate de facto exchange rate regimes, a synthesis of two techniques. One is a technique that the authors have used in the past to estimate implicit de facto weights when the hypothesis is a basket peg with little flexibility. The second is a technique used by others to estimate the de facto degree of exchange rate flexibility when the hypothesis is an anchor to the dollar or some other single major currency, but with a possibly-substantial degree of flexibility around that anchor. Since many currencies today follow variants of Band-Basket-Crawl, it is important to have available a technique that can cover both dimensions, inferring weights and inferring flexibility. We try out the technique on twenty-some currencies, over the period 1980-2007. Most are currencies that have officially used baskets as anchors for at least part of this sample period. But a few are known floaters or known simple peggers. In general the synthesis technique seems to work as it should.
Keywords: exchange rate regimes; de facto; flexibility; basket weights
JEL Codes: F31; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| type of exchange rate regime (F33) | observed variability in exchange rates (F31) |
| type of exchange rate regime (F33) | observed variability in reserves (E01) |
| high variability of exchange rates (F31) | floating regime (F33) |
| low variability of exchange rates (F31) | pegged regime (F33) |
| declared regime (N40) | actual practices (B52) |
| known floaters (F31) | higher flexibility parameters (C51) |
| known peggers (E12) | lower flexibility parameters (C51) |