Munich Personal RePEc Archive

Fear of floating

Reinhart, Carmen and Calvo, Guillermo (2002): Fear of floating. Published in: Quarterly Journal of Economics , Vol. 117, No. 2 (May 2002): pp. 379-408.

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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.”

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