Financial Development、Capital Control And The Path Of The Evolution Of Intermediate Exchange Rate Regimes

The discussion on the choice of exchange rate regime has not been quelled since the last country.And the evolving path of exchange rate regime has promoted the theoretical understanding of the exchange rate regime.Since the collapse of the Bretton Woods system,the trend adopting an intermediate exchange rate regime had been popular among countries.However,some countries adopting the intermediate exchange rate regime begun to shift to a fully fixed or floating exchange rate regime.Academic circles had also proposed countries should take a fully floating or completely fixed exchange rate regime,which is also known as the "bi-polar view".But some recent studies have found that there are significant differences between countries in different stages of development.Developing countries and emerging market countries still have a larger proportion of adopting of intermediate exchange rate regime arrangements.In order to explore the evolution of the intermediate exchange rate regime and the reasons for the above contradictions,we use the COX model and the competitive risk model in survival analysis to explore the role of evolution of the intermediate exchange rate regime in developing countries and emerging market countries exchange rate regime selection factors play.The data set used in this paper is mainly composed of annual observations of 162 economies from 1970 to 2010.The traditional theory of exchange rate regime selection factors has been successfully explained in many countries the exchange rate regime arrangements.But there are exceptions,some of the developing countries or emerging market countries,the exchange rate regime arrangements did not be well explained.Recent studies have pointed out that the role of financial development and capital openness in the choice of exchange rate regimes may compensate for this deficiency to a certain extent.The significance of the research on this issue is mainly embodied in three aspects:First,it is different from the traditional research on the transformation mechanism of the dual exchange rate regime.The introduction of the intermediate exchange rate regime makes the situation more realistic and clearly distinguishes the influence of factors playing a different role so that the controversial different stages of development of the countries appeared in the bi-polar able to analyze;Secondly,the financial development and capital control factors are introduced into the study of the duration of the exchange rate regime,and the specific relationship between the evolution of the intermediate exchange rate regime and the two is explored.Finally,this article no longer considers that the choice of exchange rate regime at each point of time is an independent event,but introduce a survival analysis considering the impact of a country’s past exchange rate regime to current exchange rate regime arrangement.Our aim is to study the impact of exchange rate system choice on the conditional probability of leaving the existing intermediate exchange rate regime.This paper introduces the competitive risk model based on the COX model to emphasize the non-monotonic effect of the exchange rate regime selection factors in different exchange rate regime evolution paths.The contribution of this research is reflected in the following two aspects:On the one hand,this paper introduces the intermediate exchange rate regime into the study of the withdrawal mechanism of the binary exchange rate regime,and analyzes the differences in the evolution path of the intermediate exchange rate regime in different stages of development.This allows the duration study of the intermediate exchange rate regime to provide an explanation for the bi-polar of the countries at different stages of development.On the other hand,this paper analyzes the data of each country through the COX model and ’the competitive risk model,and obtains the relative risk of the evolution of the intermediate exchange rate regime in different development stages.Based on the empirical analysis,it is found that the factors influencing the change of the exchange rate regime are not the same in different stages of development.Moreover,the same factors play different roles in different evolution paths of the intermediate exchange rate regime.Specifically,the following conclusions can be drawn:(1)For developing countries and emerging market countries,financial development and capital openness play an important role in the evolution of the intermediate exchange rate regime.With the rise in financial development,developing countries would shift to a less flexible exchange rate regime,while emerging market countries would be easier to maintain in the intermediate exchange rate regime relative to the floating regime.With the increase in the degree of capital openness,developing countries would be more likely to remain in the intermediate exchange rate regime relative to the floating regime,and emerging market countries would be more likely to remain in the intermediate exchange rate regime than fixed regime.(2)Developing countries are more inclined to maintain the intermediate exchange rate regime as economic development,per capita GDP growth rates,currency mismatch levels and foreign exchange reserves rise.(3)Emerging market countries are more inclined to maintain the intermediate exchange rate regime as per capita GDP growth rates,foreign exchange reserves,current account balances and currency mismatch levels increase.(4)On the whole,more exchange rate system choice influencing factors play a role in the path of f switching from a intermediate exchange rate regime to a flexible one.