State Dependence and Exchange Rate Regimes Choice of New Emerging Market Economies
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| Title | State Dependence and Exchange Rate Regimes Choice of New Emerging Market Economies
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| Author | Lu Jiye,Zhang Rao and Chen Taiming |
| Organization | Shantou University; Nanjing Agricultural University; Dongbei University of Finance and Economics |
| Email | lujiye@126.com ；zrao@vip.163.com；chentaiming@dufe.edu.cn |
| Key Words | Exchange Rate Regimes, Exchange Rate Intervention, State Dependence, Multinomial Choice Panel Logit Model, Simulated Maximum Likelihood |
| Abstract | This paper, using the dynamic multinomial random effect panel Logit model, and focusing on the state dependence, tries to provide empirical explanations to the stylized facts of the long-term and widespread adoption of the crawling peg and the band/ management floating exchange rate regimes in emerging economies. The main findings are as follows:（1）The existing literatures overestimate the true impact of the variables on the choice of exchange rate regimes because the state dependence factors are not identified. (2) The exchange rate regimes choice of emerging economies is mainly determined by the state dependent factors, and the true state dependence is an important reason for the long-term and widespread adoption of the crawling peg and the band/ management floating exchange rate regimes in emerging economies. (3) The impacts of Non-state-dependent factors on exchange rate regimes choice are not statistically significant and robust, which is largely different to the prediction of the classical exchange rate regime choice theory. The policy implications of this paper are as follows: (1) The crawling peg and the band/ management floating exchange rate regimes do not necessarily have a crisis tendency, and are sustainable and stabilize the economy under certain conditions. (2) The optimal choice of exchange rate regime does not necessarily follow the only path from fixed to intermediate to floating. The policy makers should choose the exchange rate regime according to the features of macroeconomy, the nature and sustainability of economic shocks, and the maturity of macro policy framework. (3) The Chinese monetary authorities should firmly stabilize the RMB exchange rate through the managed floating exchange rate regime, and transform from the current managed floating exchange rate regime to freely floating exchange rate regime when the financial market develops further and the macro-policy framework is relatively mature. |
| Serial Number | WP1462 |
| Time | 2020-01-16 |
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