Capital Control、Currency Mismatch And Path Of The Evolution Of Intermediate Exchange Rate Regimes

Early years, exchange rate regime was mainly converted between the fixed exchange rate regime and the floating exchange rate regime. After the collapse of the Bretton Woods System in 1973, some countries have tended to choose a certain kind of intermediate regimes which is between strictly fixed exchange rate regime and completely free floating exchange rate. From 1974 to the middle 1990s, intermediate regimes gradually became important and were used widely among countries because of their superiority. But after the middle 1990s, with the outbreak of the financial crisis in emerging market countries, the evolution of intermediate regimes of countries at different stages of development presented different patterns:firstly, the extent of the bipolarization phenomenon for countries at different stages of development is different, emerging market countries and developed countries gradually tended to choose bipolar regimes, but the polarization phenomenon in developing countries was not obvious. Secondly, "fear of floating" phenomenon didn’t appear in all countries, exchange rate regimes adopted by developing countries and emerging market countries seemed to be fear of floating, while exchange rate regime announced officially by developed countries had strong credibility.This paper uses panel data for 140 countries from 1995 to 2008 to analyze what factors cause the two phenomena in the path of the evolution of intermediate exchange rate regime. Research on this issue is undoubtedly of great significance, its importance is reflected in two aspects:on the one hand, this paper adds the intermediate exchange regime between the fixed exchange rate regime and the floating exchange rate regime to discuss the existence of the polarization phenomenon and "fear of floating" phenomenon, then compare the factors that influence the choices of exchange rate regime of different stages of development countries to analyze in depth the reasons for the special polarization phenomenon and "fear of floating" phenomenon, this has important implications for improving the completeness of exchange rate regime choice theory; on the other hand, this study has some value on the analysis of the reform of Chinese exchange rate regime,and it is suggestive for China on how to choose the most appropriate transition path for exchange rate regime. The contribution of this paper is threefold. Firstly, by introducing intermediate exchange rate, it is no longer limited to the fixed exchange rate or the floating exchange rate for the selection of the exchange rate regimes, we can extend the binary choice model to the multiple choice model and make a more detailed discussion of this issue in a more complex ternary selection framework. Secondly, based on the evolution path of the intermediate exchange rate regime, we find significant differences in the different stages of development countries by comparing the evolution of intermediate regimes. Finally, we use panel data to make explanations for the two interesting phenomena which occurred during the evolution path of the intermediate exchange rate regime.Through the random effects logit regression (panel multinomial logistic model), We get the following conclusions:(1) Although the choice of exchange rate regimes is influenced by some common factors, such as shocks to the economy, capital mobility, currency mismatch and the ability to defense to the currency crisis, the factors which plays a main and important role in the choice of exchange rate regimes are different for countries at different stages of development. (2) Capital mobility and different shocks are the main reasons for bipolarization phenomenon.(3) Compared with emerging market countries, there are more factors making the bipolarization phenomenon occurred in developed countries that is the reason why the bipolarization phenomenon is more obvious in developed countries than that in emerging market countries.(4) The reasons why "fear of floating" appears are different for developing countries and emerging market countries, "fear of floating" is mainly due to the trade openness and foreign exchange reserves for developing countries, but currency mismatch is the main reason for emerging market countries.(5) "Balance Sheet Effect" caused by liability dollarization induced "fear of floating" phenomenon in emerging market countries, but this effect didn’t play a role in developing countries.