Exchange Rate Flexibility: How Should We Measure It?

This paper first examines some recent exchange rate classification schemes. There is little evidence of a trend towards greater agreement between schemes. There is a probability of between 16 and 28 percent that a peg in one classification scheme is coded as a float in a different scheme, or vice versa. This probability is much smaller for the tightest forms of peg and the most volatile floats. Continuous indices of exchange rate flexibility are analysed and shown to have significant potential, despite the lack of interest in them shown in previous research