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Exchange arrangements entering the twenty-first century: which anchor will hold?

Ilzetzki, Ethan, Reinhart, Carmen M. and Rogoff, Kenneth S. (2019) Exchange arrangements entering the twenty-first century: which anchor will hold? Quarterly Journal of Economics, 134 (2). pp. 599-646. ISSN 0033-5533

[img] Text (EXCHANGE ARRANGEMENTS ENTERING THE 21ST CENTURY) - Accepted Version
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Identification Number: 10.1093/qje/qjy033

Abstract

This article provides a comprehensive history of anchor or reference currencies, exchange rate arrangements, and a new measure of foreign exchange restrictions for 194 countries and territories over 1946-2016. We find that the often cited post-Bretton Woods transition from fixed to flexible arrangements is overstated; regimes with limited flexibility remain in the majority. Even if central bankers' communications jargon has evolved considerably in recent decades, it is apparent that many still place a large implicit weight on the exchange rate. The U.S. dollar scores as the world's dominant anchor currency by a very large margin. By some metrics, its use is far wider today than 70 years ago. In contrast, the global role of the euro appears to have stalled. We argue that in addition to the usual safe assets story, the record accumulation of reserves since 2002 may also have to do with many countries' desire to stabilize exchange rates in an environment of markedly reduced exchange rate restrictions or, more broadly, capital controls: an important amendment to the conventional portrayal of the macroeconomic trilemma.

Item Type: Article
Official URL: https://academic.oup.com/qje
Additional Information: © 2018 President and Fellows of Harvard College
Divisions: Economics
Subjects: H Social Sciences > HB Economic Theory
JEL classification: N - Economic History > N2 - Financial Markets and Institutions > N20 - General, International, or Comparative
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F40 - General
F - International Economics > F3 - International Finance > F30 - General
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E50 - General
Sets: Departments > Economics
Date Deposited: 05 Jun 2018 14:35
Last Modified: 14 Dec 2019 00:01
URI: http://eprints.lse.ac.uk/id/eprint/88184

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