Transitions in exchange rate regimes in the aftermath of the global economic crisis

Abstract

Has the global economic crisis resulted in countries shifting their exchange rate regimes and, if so, in what way? Focusing on the relevant period of 2008–2012, and using the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions classification of exchange rate regimes and database, we calculate exchange rate regime transition probabilities and test their statistical significance. Even though there is some evidence of state dependence, in the sense that transitions are relatively infrequent, we do find that these are significant, especially in the direction of fixity. Our testing procedure employs the Wilson (1927) statistic, which is appropriate for drawing inference based on relatively rare events. By examining all transitions in detail, we also find further evidence that countries that shift often flip back to their previous regime.