IMF Economic Review

, Volume 63, Issue 1, pp 238–276 | Cite as

Exchange Rate Management and Crisis Susceptibility: A Reassessment

  • Atish R Ghosh
  • Jonathan D Ostry
  • Mahvash S Qureshi


This paper revisits the bipolar prescription for exchange rate regime choice and asks two questions: Are the poles of hard pegs and pure floats still safer than the middle? And where to draw the line between safe floats and risky intermediate regimes? Our findings, based on a sample of 50 emerging market economies over 1980–2011, show that macroeconomic and financial vulnerabilities are significantly greater under less flexible exchange rate regimes—including hard pegs—as compared with floats. Although not especially susceptible to banking or currency crises, hard pegs are significantly more prone to growth collapses, suggesting that the security of the hard end of the prescription is largely illusory. Intermediate regimes as a class are the most susceptible to crises, but “managed floats”—a subclass within such regimes—behave much more like pure floats, with significantly lower risks and fewer crises. “Managed floating,” however, is a nebulous concept; a characterization of more crisis-prone regimes suggests no simple dividing line between safe floats and risky intermediate regimes.

JEL Classifications

F31 F33 



Paper prepared for the IMF’s Fourteenth Annual Research Conference, November 7–8, 2013, Washington, DC. We are grateful to Jeffrey Frankel, Pierre-Olivier Gournichas, anonymous referees, and participants at the IMF’s Annual Research Conference and the 12th Research Meeting of NIPFP-DEA Research Program for very helpful comments and suggestions, and to Hyeon Ji Lee for excellent research assistance. The views expressed herein are those of the authors and do not necessarily represent those of the IMF or IMF policy.

Supplementary material

41308_2015_BFimfer201429_MOESM1_ESM.pdf (276 kb)
Online Appendix
41308_2015_BFimfer201429_MOESM2_ESM.dta (582 kb)


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Copyright information

© International Monetary Fund 2015

Authors and Affiliations

  • Atish R Ghosh
  • Jonathan D Ostry
  • Mahvash S Qureshi

There are no affiliations available

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