Exchange rate regime classifications and exchange rate variability

ABSTRACT

It is well known that the exchange rate regime (ERR) declared to the IMF is often different from the actual regime. Several alternative schemes for de facto regime classification have been developed. In this article, we compare the ability of four popular schemes to track exchange rate variability (ERV). We find that the existing ERR classifications do not match well with the degree of ERV, especially for intermediate regimes. For instance, in the Levy-Yeyati and Sturzenegger (2003) coding, the intermediate regimes exhibit greater ERV than the floaters. On the other hand, for the Reinhart and Rogoff (2004) coding, the fixers show greater variability than some intermediates.

KEYWORDS:

• Exchange rate regimes
• exchange rate variability

JEL CLASSIFICATION:

• F30
• F31

Notes

¹ See Obstfeld and Rogoff (1995) and Calvo and Reinhart (2002) for more discussion.

² The use of SD is commonly used as a measure of ERV, see Rose (2000), Devereux and Lane (2003) and Levy-Yeyati and Sturzenegger (2003).

³ The use of the LY–S five-way classification and the R–R fine classification yields little difference and thus the results are not reported. The value of LY–S classification is re-ordered to match other classifications.

⁴ The R–R scheme uses the market-determined rate while the K–S scheme relies on the official rate.

⁵ Group 6 is not considered because in this group countries that have a dual market do not have parallel market data for classification.