Fear of floating

GA Calvo, CM Reinhart - The Quarterly journal of economics, 2002 - academic.oup.com
The Quarterly journal of economics, 2002academic.oup.com
Many emerging market countries have suffered financial crises. One view blames soft pegs
for these crises. Adherents of this view suggest that countries move to corner solutions—
hard pegs or floating exchange rates. We analyze the behavior of exchange rates, reserves,
and interest rates to assess whether there is evidence that country practice is moving toward
corner solutions. We focus on whether countries that claim they are floating are indeed
doing so. We find that countries that say they allow their exchange rate to float mostly do not …
Abstract
Many emerging market countries have suffered financial crises. One view blames soft pegs for these crises. Adherents of this view suggest that countries move to corner solutions—hard pegs or floating exchange rates. We analyze the behavior of exchange rates, reserves, and interest rates to assess whether there is evidence that country practice is moving toward corner solutions. We focus on whether countries that claim they are floating are indeed doing so. We find that countries that say they allow their exchange rate to float mostly do not—there seems to be an epidemic case of “fear of floating.”
Oxford University Press