Are Pegged and Intermediate Exchange Rate Regimes More Crisis-prone? IMF Working Paper

2003 The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. This paper provides evidence on the susceptibility of different types of exchange rate regimes to currency crises during 1990–2001. It explores the incidence of crises, identified as episodes of severe exchange market pressure, to seek evidence on whether pegged regimes are more crisis prone than floating regimes and on whether certain types of pegged regimes are more crisis prone than others. The paper finds that pegged regimes, as a whole, have been characterized by a higher incidence of crises than floating regimes, for countries that are more integrated with international capital markets; and that intermediate regimes (mainly soft pegs and tightly-managed floating regimes) have been more crisis prone than both hard pegs and other floating regimes—a view consistent with the bipolar view of exchange rate regimes. The degree of crisis proneness seems to be broadly similar across different types of intermediate regimes