Tag: Exchange rate regimes

How fixed are global exchange rates?

Roger Vicquéry and Kevin Hjortshøj O’Rourke

While the collapse of the Bretton Woods system in 1973 has traditionally been seen as heralding a major shift towards floating exchange rates, the extent of this transition away from fixed arrangements has been called into question by a ‘New Consensus’ view. We provide a new index to measure exchange rate fixity at the global level, which restores the conventional account of international monetary history over the last 70 years: according to our measurement global exchange rate fixity is now only about a third of its Bretton Woods level. We highlight how this transition to floating arrangements was largely driven by anchor currencies ceasing to be pegged to one another.

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Friedman was right: flexible exchange rates do help external rebalancing

Fernando Eguren-Martin.

Do exchange rate regimes matter for the formation of countries’ external imbalances? Economists have thought so for over sixty years, and policymakers have made countless recommendations based on that presumption. But this had not been tested empirically until very recently, so it remained an opinion rather than a fact.  In this post I show that having a flexible exchange rate regime leads to the correction of external imbalances in developing countries, offering some empirical support to a widely held belief. In contrast, this does not seem to be the case for advanced economies.

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