Skip to main content
SpringerLink
Log in

The Choice of Exchange Rate Regime in Emerging-Market and Transition Economies

  • Chapter
Palgrave Dictionary of Emerging Markets and Transition Economics

Abstract

The exchange rate regime comprises the exchange rate arrangement and a number of complementary policies, including possible capital controls and monetary policy. The normative choice of an appropriate exchange rate regime must take into account many factors. Fixed exchange rates facilitate international trade, but may lead to more variability of output and employment. For emerging-market and transition economies, other factors such as export competitiveness, disinflation policies, maintenance of low inflation, and the credibility and administrative capacity of the authorities may be equally important. These features differ across countries and change over time. Empirical studies suggest that numerous factors are of importance for the choice of exchange rate regime, but also that the effects of the choice are difficult to pin down.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 84.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Hardcover Book
USD 109.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  • Adam, C. and D. Cobham (2007). ‘Exchange Rate Regimes and Trade’. Manchester School, 75(1), 44–63.

    Article  Google Scholar 

  • Agell, J., L. Calmfors, and G. Jonsson (1996). ‘Fiscal Policy When Monetary Policy Is Tied to the Mast’. European Economic Review, 40(7), 1413–1440.

    Article  Google Scholar 

  • Agenor, P.-R. and P.J. Montiel (2008). Development Macroeconomics, third edition (Princeton, NJ: Princeton University Press).

    Google Scholar 

  • Alexius, A. and E. Post (2008). ‘Exchange Rates and Asymmetric Shocks in Small Open Economies’. Empirical Economics, 35(3), 527–541.

    Article  Google Scholar 

  • Auboin, M. and M. Ruta (2013). ‘The Relationship between Exchange Rates and International Trade: A Literature Review’. World Trade Review, 12(3), 577–605.

    Article  Google Scholar 

  • Bahmani-Oskooee, M. and A. Ratha (2004). ‘The j-curve: A Literature Review’. Applied Economics, 36(13), 1377–1398.

    Article  Google Scholar 

  • Barro, R. and S. Tenreyro (2006). ‘Economic Effects of Currency Unions’. Economic Inquiry, 45(1), 1–23.

    Article  Google Scholar 

  • Baxter, M. and A. Stockman (1989). ‘Business Cycles and the Exchange-rate Regime: Some International Evidence’. Journal of Monetary Economics, 23(3), 377–400.

    Article  Google Scholar 

  • Berdiev, A.N., Y. Kim, and C.P. Chang (2012). ‘The Political Economy of Exchange Rate Regimes in Developed and Developing Countries’. European Journal of Political Economy, 28(1), 38–53.

    Article  Google Scholar 

  • Bleaney, M. and M. Francisco (2007). ‘Exchange Rate Regimes Inflation and Growth in Developing Countries: An Assessment’. BE Journal of Macroeconomics, 7(1), 1–20.

    Google Scholar 

  • Bordo, M.D. (2003). ‘Exchange Rate Regime Choice in Historical Perspective’. IMF Working Papers, WP/03/160 (Washington D.C.: International Monetary Fund).

    Book  Google Scholar 

  • Calvo, G. (2000). ‘The Case for Hard Pegs in the Brave New World of Global Finance’ in J.B. De Macedo, D. Cohen, and H. Reisen (eds) Don’t Fix, Don’t Float (Paris: OECD Publishing), 77–83.

    Google Scholar 

  • Calvo, G.A., L. Leiderman and C.M. Reinhart (1996). ‘Inflows of Capital to Developing Countries in the 1990s’. Journal of Economic Perspectives, 10(2), 123–139.

    Article  Google Scholar 

  • Calvo, G.A. and F.S. Mishkin (2003). ‘The Mirage of Exchange Rate Regimes for Emerging Market Countries’. Journal of Economic Perspectives, 17(4), 99–118.

    Article  Google Scholar 

  • Calvo, G.A. and C.M. Reinhart (2002). ‘Fear of Floating’. Quarterly Journal of Economics, 117(2), 379–408.

    Article  Google Scholar 

  • Caporale, T. and K. Doroodian (1994). ‘Exchange Rate Variability and the Flow of International Trade’. Economic Letters, 46(1), 49–54.

    Article  Google Scholar 

  • Carmignani, F., E. Colombo, and P. Tirellib (2008). ‘Exploring Different Views of Exchange Rate Regime Choice’. Journal of International Money and Finance, 27(7), 1177–1197.

    Article  Google Scholar 

  • Chang, R. and A. Velasco (2000). ‘Financial Fragility and the Exchange Rate Regime’. Journal of Economic Theory, 92(1), 1–34.

    Article  Google Scholar 

  • Clarida, R. and J. Gali (1994). ‘Sources of Real Exchange Rate Fluctuations: How Important Are Nominal Shocks?’ Carnegie-Rochester Conference on Public Policy, 41, 1–56.

    Article  Google Scholar 

  • Cruz-Rodriguez, A. (2013). ‘Choosing and Assessing Exchange Rate Regimes: A Survey of the Literature’. Revista de Analisis Economico, 28(2), 37–61.

    Article  Google Scholar 

  • De Grauwe, P. (2014). Economics of Monetary Union, tenth edition (Oxford: Oxford University Press).

    Google Scholar 

  • De Gregorio, J., S. Edwards, and R.O. Valdes (2000). ‘Controls on Capital Inflows: Do They Work?’ Journal of Development Economics, 63(1), 59–83.

    Article  Google Scholar 

  • Doganlar, M. (2002). ‘Estimating the Impact of Exchange Rate Volatility on Exports: Evidence from Asian Countries’. Applied Economics Letters, 9(13), 859–863.

    Article  Google Scholar 

  • Doroodian, K. (1999). ‘Does Exchange Rate Volatility Deter International Trade in Developing Countries?’ Journal of Asian Economics, 10(1), 465–474.

    Article  Google Scholar 

  • Edwards, S. (1999). ‘How Effective Are Capital Controls?’ Journal of Economic Perspectives, 13(4), 65–84.

    Article  Google Scholar 

  • Edwards, S. (1996). ‘The Determinants of the Choice between Fixed and Flexible Exchangerate Regimes’. NBER Working Papers, WP/5756 (Cambridge, MA: National Bureau of Economic Research).

    Book  Google Scholar 

  • Edwards, S. and R. Rigobon (2009). ‘Capital Controls on Inflows, Exchange Rate Volatility and External Vulnerability’. Journal of International Economics, 78(2), 256–267.

    Article  Google Scholar 

  • Egert, B., I. Drine, K. Lommatzsch, and C. Rault (2003). ‘The Balassa-Samuelson Effect in Central and Eastern Europe: Myth or Reality?’ Journal of Comparative Economics, 31(3), 552–572.

    Article  Google Scholar 

  • Eichengreen, B. and R. Haussman (1999). ‘Exchange Rates and Financial Fragility’. NBER Working Papers, WP/7418 (Cambridge, MA: National Bureau of Economic Research).

    Book  Google Scholar 

  • Engel, C. (2014). ‘Exchange Rates and Interest Parity’ in G. Gopinath, E. Helpman and K. Rogoff (eds) Handbook of International Economics, volume 4 (Oxford: North Holand), 453–522.

    Google Scholar 

  • Esteban J., P.R. Masson, P. Mauro, M. Mussa, A.K. Swoboda, and A. Berg (2000). ‘Exchange Rate Regimes in an Increasingly Integrated World Economy’. IMF Occasional Papers, 193 (Washington D.C.: International Monetary Fund).

    Google Scholar 

  • Farrant, K. and G. Peersman (2006). ‘Is the Exchange Rate a Shock Absorber or a Source of Shocks? New Empirical Evidence’. Journal of Money, Credit and Banking, 38(4), 939–961.

    Article  Google Scholar 

  • Fischer, S. (2001). ‘Exchange Rate Regimes: Is the Bipolar View Correct?’ Journal of Economic Perspectives, 15(2), 3–24.

    Article  Google Scholar 

  • Fleming, J.M. (1962). ‘Domestic Financial Policies under Fixed and Floating Exchange Rates’. IMF Staff Papers, 9(3), 369–380.

    Article  Google Scholar 

  • Flood, R. and P. Garber (1984). ‘Collapsing Exchange Rate Regimes: Some Linear Examples’. Journal of International Economics, 17(1–2), 1–13.

    Article  Google Scholar 

  • Frankel, J. (1999). ‘No Single Currency Regime Is Right for All Countries Or at All Times’. in P.B. Kenen, M.B. Riccardi, S.B. Ernst, and L.H. Chandra (eds) Essays in International Finance, no. 215 (Princeton, NJ: Princeton University Press).

    Google Scholar 

  • Frankel, J.A. (2003). ‘Experience of and Lessons from Exchange Rate Regime in Emerging Economies’. NBER Working Papers, WP/10032, (Cambridge, MA: National Bureau of Economic Research).

    Book  Google Scholar 

  • Frankel, J.A. and A.K. Rose (1998). ‘The Endogeneity of the Optimum Currency Area Criteria’. Economic Journal, 108(449), 1009–1025.

    Article  Google Scholar 

  • Frieden, J.A. (2015). Currency Politics: The Political Economy of Exchange Rate Policy (Princeton, NJ: Princeton University Press).

    Book  Google Scholar 

  • Galati, G. and R. Moessner (2013). ‘Macroprudential Policy: A Literature Review’. Journal of Economic Surveys, 27(5), 846–878.

    Google Scholar 

  • Genberg, H. and A. K. Swoboda (2005). ‘Exchange Rate Regimes: Does What Countries Say Matter?’ IMF Staff Papers, 52(special issue), 129–141.

    Google Scholar 

  • Ghosh, A.R., A.-M. Gulde, J.D. Ostry, and H.C. Wolf (1997). ‘Does the Nominal Exchange Rate Regime Matter?’ NBER Working Papers, WP/5874 (Cambridge, MA: National Bureau of Economic Research).

    Book  Google Scholar 

  • Ghosh, A.R., A.-M. Gulde, and H.C. Wolf (2002). Exchange Rate Regimes: Choices and Consequences (Cambridge, MA: MIT Press).

    Google Scholar 

  • Ghosh, A.R., J.D. Ostry, and C. Tsangarides (2010). ‘Exchange Rate Regimes and the Stability of the International Monetary System’. IMF Occasional Papers, 270 (Washington D.C.: International Monetary Fund).

    Google Scholar 

  • Giles J.A. and C.L. Williams (2000). ‘Export-led Growth: A Survey of the Empirical Literature and Some Non-Causality Results. Part 1’. Journal of International Trade and Economic Development, 9(4), 261–337.

    Article  Google Scholar 

  • Globan, T. (2014). ‘Testing the “Trilemma” in Post-transition Europe: A New Empirical Measure of Capital Mobility’. Post-Communist Economies, 26(4), 459–476.

    Article  Google Scholar 

  • Hayakawa, K. and F. Kimura (2008). ‘The Effect of Exchange Rate Volatility on International Trade in East Asia’. ERIA Discussion Paper Series, 2008–2003 (Jakarta: Economic Research Institute for ASEAN and East Asia).

    Google Scholar 

  • Husain, A.M., A. Mody and K.S. Rogoff (2005). ‘Exchange Rate Regime Durability and Performance in Developing Versus Advanced Economies’. Journal of Monetary Economics, 52(1), 35–64.

    Article  Google Scholar 

  • IMF (1997). ‘Exchange Rate Arrangements and Economic Performance in Developing Countries’. World Economic Outlook, October, (Washington D.C.: International Monetary Fund).

    Google Scholar 

  • IMF (2014). ‘Annual Report on Exchange Arrangements and Exchange Restrictions 2014’. (Washington D.C.: International Monetary Fund).

    Google Scholar 

  • Juhn, G. and P. Mauro (2002). ‘Long-run Determinants of Exchange Rate Regimes: A Simple Sensitivity Analysis’. IMF Working Papers, WP/02/104 (Washington D.C.: International Monetary Fund).

    Google Scholar 

  • Kaminsky, G.L. and C.M. Reinhart (1999). ‘The Twin Crises: The Causes of Banking and Balance-of-Payments Problems’. American Economic Review, 89(3), 472–500.

    Article  Google Scholar 

  • Klein, M. and J.C. Shambaugh (2010). Exchange Rate Regimes in the Modern Era (Cambridge, MA: MIT Press).

    Google Scholar 

  • Klein, M.W. and J.C. Shambaugh (2008). ‘The Dynamics of Exchange Rate Regimes: Fixes, Floats, and Flips’. Journal of International Economics, 75(1), 70–92.

    Article  Google Scholar 

  • Klyuev, V. (2002). ‘Exchange Rate Regime Choice in Central and Eastern European Transitional Economies’. Comparative Economic Studies, 44(4), 85–117.

    Article  Google Scholar 

  • Korinek, A. and L. Serven (2010). ‘Undervaluation through Foreign Reserve Accumulation: Static Losses, Dynamic Growth’. Policy Research Working Papers, WP/5250 (Washington D.C.: The World Bank).

    Book  Google Scholar 

  • Krugman, P. (1979). ‘A Model of Balance-of-Payments Crises’. Journal of Money, Credit and Banking, 11(3), 311–325.

    Article  Google Scholar 

  • Levy-Yeyati, E. and F. Sturzenegger (2005). ‘Classifying Exchange Rate Regimes: Deeds Vs. Words’. European Economic Review, 49(6), 1603–1635.

    Article  Google Scholar 

  • Levy-Yeyati, E. and F. Sturzenegger (2003). ‘To Float or to Fix: Evidence on the Impact of Exchange Rate Regimes on Growth’. American Economic Review, 93(4), 1173–1193.

    Article  Google Scholar 

  • Magee, S. (1973). ‘Currency Contracts, Pass-through, and Devaluation’. Brooking Papers on Economic Activity, 1(1973), 303–325.

    Article  Google Scholar 

  • Markiewicz, A. (2006). ‘Choice of Exchange Rate Regime in Transition Economies: An Empirical Analysis’. Journal of Comparative Economics, 34(3), 484–498.

    Article  Google Scholar 

  • McKenzie, M.D. (1999). ‘The Impact of Exchange Rate Volatility on International Trade Flows’. Journal of economic Surveys, 13(1), 71–106.

    Article  Google Scholar 

  • McKinnon, R. and G. Schnabl (2009). ‘The Case for Stabilizing China’s Exchange Rate: Setting the Stage for Fiscal Expansion’. China and World Economy, 17(1), 1–32.

    Article  Google Scholar 

  • McKinnon, R.I. (1963). ‘Optimum Currency Areas’. American Economic Review, 53(4), 712–725.

    Google Scholar 

  • Mundell, R.A. (1961). ‘A Theory of Optimum Currency Areas’. American Economic Review, 51(3), 657–665.

    Google Scholar 

  • Obstfeld, M. (1996). ‘Models of Currency Crisis with Self-Fulfilling Features’. European Economic Review, 40(3–5), 1037–1048.

    Article  Google Scholar 

  • Obstfeld, M., J.C. Shambaugh, and A.M. Taylor (2005). ‘The Trilemma in History: Tradeoffs among Exchange Rates, Monetary Policies, and Capital Mobility’. Review of Economics and Statistics, 87(3), 423–438.

    Article  Google Scholar 

  • Ostry, J.D., A.R. Ghosh, K. Habermeier, M. Chamon, M.S. Qureshi, and D.B.S. Reinhardt (2010). ‘Capital Inflows: The Role of Controls’. IMF Staff Position Note, 10/04 (Washington D.C.: International Monetary Fund).

    Google Scholar 

  • Ostry, J.D., A.R. Ghosh, K. Habermeier, L. Laeven, M. Chamon, M.S. Qureshi, et al. (2011). ‘Managing Capital Inflows: What Tools to Use?’ IMF Staff Discussion Notes, 11/06 (Washington D.C.: International Monetary Fund).

    Google Scholar 

  • Ozturk, I. (2006). ‘Exchange Rate Volatility and Trade: A Literature Survey’. International Journal of Applied Econometrics and Quantitative Studies, 3(1), 85–102.

    Google Scholar 

  • Petri, P.A. (2006). ‘Is East Asia Becoming More Interdependent?’ Journal of Asian Economics, 17(3), 381–394.

    Article  Google Scholar 

  • Ravallion, M. (2010). ‘Price Levels and Economic Growth: Making Sense of the PPP Changes between ICP Rounds’. Policy Research Working Papers, WP/5229 (Washington D.C.: The World Bank).

    Book  Google Scholar 

  • Reinhart, C.M. and K. Rogoff (2004). ‘The Modern History of Exchange Rate Arrangements: A Reinterpretation’. Quarterly Journal of Economics, 119(1), 1–48.

    Article  Google Scholar 

  • Rizzo, J.-M. (1998). ‘The Economic Determinants of the Choice of an Exchange Rate Regime: A Probit Analysis’. Economics Letters, 59(3), 283–287.

    Article  Google Scholar 

  • Rodrik, D. (2009). ‘The Real Exchange Rate and Economic Growth’. Brookings Papers on Economic Activity, 39(2), 365–412.

    Article  Google Scholar 

  • Romer, D. (2005). Advanced Macroeconomics, third edition (New York: McGraw-Hill).

    Google Scholar 

  • Rose, A. (2000). ‘One Market, One Money: Estimating the Effect of Common Currencies on Trade’. Economic Policy, 30, 7–45.

    Google Scholar 

  • Rose, A.K. and T.D. Stanley (2005). ‘A Meta-analysis of the Effect of Common Currencies on International Trade’. Journal of Economic Surveys, 19(3), 347–365.

    Article  Google Scholar 

  • Shambaugh, J. (2004). ‘The Effect of Fixed Exchange Rates on Monetary Policy’. Quarterly Journal of Economics, 119(1), 301–352.

    Article  Google Scholar 

  • Simwaka, K. (2010). ‘Choice of Exchange Rate Regimes for African Countries: Fixed or Flexible Exchange Rate Regimes?’. MPRA Paper, 23129, date accessed 20 July 2015, https://ideas.repec.org/p/pra/mprapa/23129.html.

    Google Scholar 

  • Skořepa, M. and L. Komárek (2013). ‘Sources of Asymmetric Shocks: The Exchange Rate or Other Culprits?’ Working Paper Series, WP/12 (Prague: Czech National Bank).

    Google Scholar 

  • Staehr, K. (2015). ‘Price Convergence and the Dynamic Penn Effect in Central and Eastern Europe’. Working Paper of Eesti Pank, forthcoming.

    Google Scholar 

  • Staehr, K. (2012). ‘External Capital Flows, International Price Competitiveness and ShortTerm Economic Growth in Latvia’. European Economy — Occasional Papers, 120, 19–39.

    Google Scholar 

  • Staiger, R.W. and A.O. Sykes (2010). ‘Currency Manipulation and World Trade’. World Trade Review, 9(4), 583–627.

    Article  Google Scholar 

  • von Hagen, J. and J. Zhou (2007). ‘The Choice of Exchange Rate Regimes in Developing Countries: A Multinomial Panel Analysis’. Journal of International Money and Finance, 26(7), 1071–1094.

    Article  Google Scholar 

  • von Hagen, J. and J. Zhou (2005). ‘The Choice of Exchange Rate Regime: An Empirical Analysis for Transition Economies’. Economics of Transition, 13(4), 679–703.

    Article  Google Scholar 

  • Williamson, J. (2000). ‘Exchange Rate Regimes for Emerging Markets: Reviving the Intermediate Option’. Policy Analyses in International Economics, vol. 60 (Washington D.C.: Institute for International Economics).

    Google Scholar 

  • Yagci, F. (2001). ‘Choice of Exchange Rate Regimes for Developing Countries’. Africa Region Working Paper Series, WP/16 (Washington D.C.: The World Bank).

    Google Scholar 

Download references

Authors
  1. Karsten Staehr
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Editors and Affiliations

  1. Bournemouth University, UK

    Jens Hölscher (Professor of Economics and Head of Department) (Professor of Economics and Head of Department)

  2. Freie University Berlin, Germany

    Horst Tomann (Jean Monnet Professor for European Economic Policy) (Jean Monnet Professor for European Economic Policy)

Copyright information

© 2015 Karsten Staehr

About this chapter

Cite this chapter

Staehr, K. (2015). The Choice of Exchange Rate Regime in Emerging-Market and Transition Economies. In: Hölscher, J., Tomann, H. (eds) Palgrave Dictionary of Emerging Markets and Transition Economics. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-137-37138-6_5

Download citation

Publish with us

Policies and ethics

Search

Navigation