The Modern History of Exchange Rate Arrangements:
A Reinterpretation
Carmen M. REINHART (University of Maryland and the IMF, USA)
Kenneth S. ROGOFF (IMF, USA)
We develop a novel system of re-classifying historical exchange rate regimes.
One difference between our study and previous classification efforts is that
we employ an extensive data base on market-determined parallel exchange rates.
Our "natural" classification algorithm leads to a stark reassessment of the
post-war history of exchange rate arrangements. When the official categorization
is a form of peg, roughly half the time our classification reveals the true
underlying monetary regime to be something radically different, often a variant
of a float. Conversely, when official classification is floating, our scheme
routinely suggests that the reality was a form of de facto peg. Our new classification
scheme points to a complete rethinking of economic performance under alternative
exchange rate regimes. Indeed, the breakup of Bretton Woods had a far less dramatic
impact on most exchange rate regimes than is popularly believed. Also, contrary
to an influential empirical literature, our evidence suggests that exchange
rate arraignments may be quite important for growth, trade and inflation. Our
newly compiled monthly data set on market-determined exchange rates goes back
to 1946 for 153 countries.