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Detection of Implicit Fluctuation Bands and their Credibility in Candidate Countries

Author

Listed:
  • Simón Sosvilla-Rivero

    (Department of Quantitative Economics, Universidad Complutense de Madrid)

  • María del Carmen Ramos-Herrera

    (Department of Quantitative Economics, Universidad Complutense de Madrid)

Abstract

This paper attempts to identify implicit exchange rate regimes for currencies of candidate countries vis-à-vis the euro. To that end, we apply three sequential procedures that consider the dynamics of exchange rates to data covering the period from 1999:01 to 2012:12. Our results would suggest that implicit bands have existed in many sub-periods for almost all currencies under study. Once we detect de facto discrepancies between de facto and de iure exchange rate regimes, we make use of different methods to study the credibility of the detected fluctuation bands. The detected lack of credibility in a high percentage of the sample is robust using the Drift Adjustment method and discrete choice models, suggesting that economic agents do not behave as if these bands actually were in force at time of making their financial plans. These countries do not improve the confidence on the fluctuation bands as time evolves.

Suggested Citation

  • Simón Sosvilla-Rivero & María del Carmen Ramos-Herrera, 2015. "Detection of Implicit Fluctuation Bands and their Credibility in Candidate Countries," Working Papers 15-08, Asociación Española de Economía y Finanzas Internacionales.
    • Handle: RePEc:aee:wpaper:1508
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    References listed on IDEAS

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    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 1-48.
    2. Coudert, Virginie & Dubert, Marc, 2005. "Does exchange rate regime explain differences in economic results for Asian countries?," Journal of Asian Economics, Elsevier, vol. 16(5), pages 874-895, October.
    3. Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc.
    4. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
    5. Jay C. Shambaugh, 2004. "The Effect of Fixed Exchange Rates on Monetary Policy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 301-352.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    exchange-rate regimes; implicit fluctuation bands; credibility; exchange rates.;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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