Estimation of de facto flexibility parameter and basket weights in evolving exchange rate regimes
By: Jeffrey A. Frankel, Daniel Xie.
Contributors: Xie, Daniel.; National Bureau of Economic Research.
Series: NBER working paper series -- working paper 15620; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 15620.
Publisher: National Bureau of Economic Research
Published: 2009
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "A new technique for estimating countries' de facto exchange rate regimes synthesizes two approaches.  One approach estimates the implicit de facto basket weights in an OLS regression of the local currency value rate against major currency values.  Here the hypothesis is a basket peg with little flexibility.  The second estimates the de facto degree of exchange rate flexibility by observing how exchange market pressure is allowed to show up.  Here the hypothesis is an anchor to the dollar or some other single major currency, but with a possibly substantial degree of exchange rate flexibility around that anchor.  It is important to have available a technique that can cover both dimensions: inferring anchor weights and the flexibility parameter.  We test the synthesis technique on a variety of fixers, floaters, and basket peggers.  We find that real world data demand a statistical technique that allows parameters and regimes to shift frequently.  Accordingly we here take the next step in estimation of de facto exchange rate regimes: endogenous estimation of parameter breakpoints, following Bai and Perron"--National Bureau of Economic Research web site.
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