A widely held nostrum is that countries should exit heavily managed
exchange rate regimes when the going is good, rather than when the
exchange rate is under pressure to depreciate. Have countries
followed this advice in practice? And, if so, how good has the
going been? We find that in the past 25 years or so, almost all
exits to more flexible regimes were followed by a depreciation of
the exchange rate, and that exits were about evenly divided between
disorderly and orderly cases. A logit econometric model, indicates
that the general circumstances of orderly and disorderly exits have
been broadly similar: an overvalued real exchange rate, falling
reserves, a difficult fiscal position, and high world interest
rates. Wellestablished pegs were less likely to end.
International Monetary Fund
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