In Search of the Divide among exchange rate regimes in Latin America

Is the debate over the choice of an exchange rate regime really relevant to Latin America? To address that major issue of economic policy, this paper considers the period from 1995 through 1998 and tests on monthly data the hypothesis of heterogeneity among countries with a managed float, countries with crawling bands and the Argentine convertibility system, from three points of view: a) in terms of macro-economic evolution, b) in terms of economic policy, and c) in terms of impulse response to exogenous shocks. Its findings totally take issue with conventional wisdom: (a) the Argentine convertibility system does not translate into Argentina being an outlier in Latin America from any macro-economic point of view; (b) countries with managed float and those with crawling bands are not statistically different from any macro-economic point of view; (c) Latin American countries, albeit abiding by different exchange rate regimes, reacted the same way to the capital outflow shock of the nineties. In other words, the debate over the choice of an exchange rate regime has to be de-emphasized in LatinAmerica.