Edited by Patrick Artus, André Cartapanis and Florence Legros
Chapter 5: Financial Vulnerability and Exchange Rate Regimes in Latin American and Asian Emerging Countries: Towards New Criteria?
André Cartapanis and Vincent Dropsy INTRODUCTION Many countries in Latin America and East Asia liberalized their ﬁnancial markets in the early 1990s and suﬀered severe currency crises later in that decade. As a result of these violent speculative attacks, most of these emerging nations appeared to have de jure selected ‘corner solutions’ (free ﬂoats, hard pegs) as their oﬃcial exchange rate regime. Fischer (2001) presents initial evidence of a trend towards this bipolar view ‘for countries open to international capital ﬂows’. However Masson (2001) concludes that intermediate regimes ‘will continue to constitute a sizable fraction of actual exchange rate regimes’. Indeed a closer investigation reveals that many developing countries have de facto implemented ‘intermediate solutions’ (managed ﬂoats, target zones, bands, crawling pegs) as their actual exchange rate regime. In this context, there are three types of issues when analysing the choice of an exchange rate regime and its sustainability. First, this type of study should not be based solely on oﬃcial (de jure) classiﬁcation of exchange rate arrangements, but also on actual (de facto) exchange rate regimes to obtain sensible results. Levy Yeyati and Sturzenegger (2001) produce a de facto exchange rate regime classiﬁcation in ﬁve categories (1 ϭ inconclusive; 2 ϭ pure ﬂoat; 3 ϭ dirty ﬂoat; 4 ϭ dirty ﬂoat/crawling peg; 5 ϭ peg) based on the volatilities of exchange rates, exchange rate changes and international reserves. They not only conclude that it is signiﬁcantly diﬀerent from the de jure exchange rate regime classiﬁcation provided...
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