Exchange Rate Flexibility: How Should We Measure It?

Bleaney, Michael; Tian, Mo

doi:10.1007/s11079-019-09577-z

Cited by 3 publications

(1 citation statement)

References 16 publications

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“…Consequently this RMSE may be regarded as an indicator of exchange rate flexibility. End-of-month observations are used to generate a flexibility measure for each calendar year, with the Swiss franc as numeraire or, in the further analysis of Bleaney and Tian (2020), with the Japanese yen as numeraire. The flexibility index is designed to be comprehensive, in that it caters for a single parity change with the exchange rate pegged before and after the change, and for crawling pegs as well as horizontal pegs.…”

Section: A Measure Of Exchange Rate Flexibilitymentioning

confidence: 99%

Reserve Volatility and the Identification of Exchange Rate Regimes

Bleaney

Tian

2021

Open Econ Rev

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Should exchange rate regime classifications be based purely on some measure of exchange rate flexibility, or should such flexibility be judged in proportion to the degree of exchange market pressure (EMP), as reflected in the behaviour of international reserves? Some authors have claimed that the best approach to classifying exchange rate regimes is to estimate to what extent EMP is absorbed in reserve variability rather than exchange rate variability. Empirical evidence is presented on the variability of reserves and exchange rates for 193 countries from 1980 to 2019. Pegged regimes do not display any more reserve volatility than floats. In most regimes there is a small but statistically significant positive correlation between reserve accumulation and exchange rate appreciation in monthly data, but this effect is no stronger in less flexible regimes, where intervention is expected to be greater. A flexibility index is constructed, based on the ratio of exchange rate flexibility to reserve volatility, and is compared to one based solely on exchange rate flexibility by investigating its conformity with the IMF de facto classification. The flexibility index that takes reserves into account does not improve the identification of pegs, but it helps to a limited extent to distinguish free floats from managed floats.

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Section: A Measure Of Exchange Rate Flexibilitymentioning

confidence: 99%

Reserve Volatility and the Identification of Exchange Rate Regimes

Bleaney

Tian

2021

Open Econ Rev

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Monetary and fiscal policy impacts under alternative trilemma regimes

Ito,

Kawai

2024

Journal of International Money and Finance

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Classifying de facto exchange rate regimes of financially open and closed economies: A statistical approach

Dąbrowski

Papież

Śmiech

2020

The Journal of International Trade & Economic Development

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This paper offers a new de facto exchange rate regime classification that draws on the strengths of three popular classifications. Its two hallmarks are the careful treatment of a nexus between exchange rate regime and financial openness and the use of formal statistical tools (the trimmed k-means and knearest neighbour methods). It is demonstrated that our strategy minimises the impact of differences between market-determined and official exchange rates on the 'fix' and 'float' categories. Moreover, it is more suited to assess empirical relevance of the Mundellian trilemma and 'irreconcilable duo' hypotheses. Using comparative analysis we find that the degree of agreement between classifications is moderate: the null of no association is strongly rejected, but its strength ranges from low to moderate. Moreover, it is shown that our classification is the most strongly associated with each of the other classifications and as such can be considered (closest to) a centre of a space of alternative classifications. Finally, we demonstrate that unlike other classifications, ours lends more support to the Mundellian trilemma than to the 'irreconcilable duo' hypothesis. Overall, our classification cannot be considered a variant of any other de facto classification. It is a genuinely new classification.

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Exchange Rate Flexibility: How Should We Measure It?

Cited by 3 publications

References 16 publications

Reserve Volatility and the Identification of Exchange Rate Regimes

Reserve Volatility and the Identification of Exchange Rate Regimes

Monetary and fiscal policy impacts under alternative trilemma regimes

Classifying de facto exchange rate regimes of financially open and closed economies: A statistical approach

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