Capital market integration, currency crises, and exchange rate regimes 1990–2002

Abstract

The international capital market integration and currency crises of the last decade have renewed the debate on optimal exchange rate regimes. Research is mixed regarding what their effect has been on the system of exchange rate regimes and the anchor currencies at the centre of the system. The debate is complicated by growing empirical evidence that the de jure regimes announced by governments often differ from the de facto regimes that are actually applied. In this paper we divide the period 1990-2002 according to the major crises and use the generalized method of moments to identify the individual de facto regimes and relevant anchor currencies for each sub-period. We find that although intermediate regimes as a percentage of the overall database remained stable over the three periods, the type of peg and anchor currencies varied considerably. Pegs on a single currency fell from 62% of the sample in the first period to 49% in the second period, then rose to 66% in the third period. Basket pegs rose from 33% in the first period to 51% in the second period and back to 34% in the third period. Independent floats disappeared after the first period. When we group countries according to their access to capital markets, we find that all nine of the developed countries in the sample followed some type of intermediate regime for all three periods. We also find a trend towards hard pegs in the group of countries that has managed to increase its integration in the international capital markets. Our results also suggest that the US dollar remains the main anchor currency in the international financial system, even after the major currency crises and the rise of the euro.

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“…Calvo and Reinhart, 2002; Bubula and Otker‐Robe, 2002; Shambaugh, 2004; Reinhart and Rogoff, 2004; Levy and Sturzenegger, 2004; Levy et al , 2004, Alesina and Wagner, 2005). Clark et al (forthcoming) have shown that, overall, de facto regimes have changed very little between 1990 and 2002.…”

Foreign currency derivative use and shareholder value

“…"Le commerce extérieur de la France, site du ministère l'Économie, de l'industrie et de l'emploi, http://www.minefe.gouv.fr.18 For example,Clark et al (2008) show that of the 90 de facto exchange rates they calculated over the period 1998-2002, 72% were tied directly to the USD: 29% were fully pegged to the USD, 9% were partially pegged to the USD, and 34% were pegged to a basket that included the USD.…”