The mirage of floating exchange rates

Reinhart, Carmen (2000): The mirage of floating exchange rates. Published in: American Economic Review , Vol. 90, No. 2 (May 2000): pp. 65-70.

Abstract

This note summarizes some of the highlights of my longer paper with Guillermo Calvo”Fear of Floating.” Many emerging market countries have suffered financial crises. One view blames soft pegs for these crises. Adherents to that view suggest that countries move to corner solutions--hard pegs or floating exchange rates. We analyze the behavior of exchange rates, reserves, and interest rates to assess whether there is evidence that country practice is moving toward corner solutions. We focus on whether countries that claim they are floating are indeed doing so. We find that countries that say they allow their exchange rate to float mostly do not--there seems to be an epidemic case of “fear of floating.”

• Item Type: MPRA Paper
• Language: English
• Keywords: fear of floating fixed exchange rates interest rates reserves
• Subjects: G - Financial Economics > G1 - General Financial Markets; F - International Economics > F3 - International Finance > F31 - Foreign Exchange

References

Calvo, GuillermoA. and Reinhart, Carmen M. “Fear of Floating.” Mimeo, University of Maryland, January 2000.

Goldstein, Morris. Safeguarding prosperity in a global financial system: The future international financial architecture report of an independent task force. Washington, DC: Institute for International Economics for the Council on Foreign Relations, 1999.

Gosh, Atish, Gulde, Anne-Marie, Ostry, Jonathan and Wolf, Holger. “Does the Nominal Exchange Rate Regime Matter?” National Bureau of Economic Research (Cambridge MA) Working Paper No. 5874, January 1997.

Obstfeld, Maurice and Rogoff, Kenneth. “The Mirage of Fixed Exchange Rates,” Journal of Economics Perspectives, Fall, 9, 73-96.