Do consistent Pegs matter? Deviations of actual exchange rate regimes form announced exchange rate regimes and currency crises

This paper uses probit models to empirically investigate whether deviations of actual exchange rate regimes from announced exchange rate regimes affect the occurrence of currency crises in 84 countries over the period 1980-2001. We use the relationship between the de jure IMF classification and the de facto Reinhart and Rogoff (2004) classification as an indicator of the discrepancy between announced regimes and actual regimes. The main results are as follows: (1) countries with a “fear of announcing a peg” policy (i.e., the policy that countries actually adopt pegged regimes without actually claiming to have pegged regimes) have a significantly higher probability of currency crises than countries with consistent pegs (i.e., the policy that countries claim to have pegged regimes and actually adopt the announced pegged regimes);(2) countries with a “fear of pegging” policy(i.e., the situation in which countries actually adopt floating regimes but claim to have pegged regimes) have a significantly higher probability of currency crises than those with consistent pegs;(3) countries with consistent floats(i.e., the policy that countries claim to have floating regimes and actually adopt the announced floating regimes) have a significantly higher probability of currency crises than those with consistent pegs; and(4) countries with consistent pegs have the lowest statistically significant risk of currency crises as compared with other exchange rate policies. These results are robust to a wide variety of samples. Hence, we can reasonably conclude that countries that in fact maintain announced pegged regimes are least prone to currency crises because they can enhance greater credibility in their currencies by sustaining their commitment to pegged regimes.文部科学省科学研究費（若手研究(B)）2005年度～2007年度、研究課題番号：17730166文部科学省科学研究費（若手研究(B)）2008年度～2009年度、研究課題番号：2073021