Estimation of De Facto Exchange Rate Regimes: Synthesis of ... · Restricting the Currency Weights...
Transcript of Estimation of De Facto Exchange Rate Regimes: Synthesis of ... · Restricting the Currency Weights...
Estimation of De Facto Exchange Rate Regimes: Synthesis of the Techniques for
Inferring Flexibility and Basket Weights
Discussion by
Steven Kamin Federal Reserve Board
Presentation given at the 8th Jacques Polak Annual Research Conference Hosted by the International Monetary Fund Washington, DC─November 15-16, 2007 Please do not quote without the permission from the author(s). The views expressed in this presentation are those of the author(s) only, and the
presence of them, or of links to them, on the IMF website does not imply that the IMF, its Executive Board, or its management endorses or shares the views expressed in the presentation.
88TTHH JJAACCQQUUEESS PPOOLLAAKK AANNNNUUAALL RREESSEEAARRCCHH CCOONNFFEERREENNCCEE NNOOVVEEMMBBEERR 1155--1166,, 22000077
Com
men
ts o
n:“E
stim
atio
n of
De
Fact
o Ex
chan
ge
Rat
e R
egim
es: S
ynth
esis
of t
he
Tech
niqu
es fo
r Inf
errin
g Fl
exib
ility
an
d B
aske
t Wei
ghts
”Je
ffre
y Fr
anke
l and
Sha
ng-J
in W
ei
Stev
en B
. Kam
inFe
dera
l Res
erve
Boa
rdN
ovem
ber 1
6, 2
007
Exc
han
ge
rate
reg
imes
mat
ter
Exc
han
ge
rate
reg
imes
mat
ter
Much
work
focu
sed o
n iden
tify
ing
Much
work
focu
sed o
n iden
tify
ing
them
them
Part
icula
rly
at I
MF
Part
icula
rly
at I
MF
Jeff
and
Jeff
and
Sha
ngS
hang
-- JinJin ’’
s C
ontri
butio
ns
Con
tribu
tion
Som
e co
untr
ies
targ
et a
bas
ket
of
Som
e co
untr
ies
targ
et a
bas
ket
of
curr
enci
escu
rren
cies
Met
hodolo
gy
for
sim
ultan
eousl
y M
ethodolo
gy
for
sim
ultan
eousl
y id
entify
ing c
urr
ency
wei
ghts
and
iden
tify
ing c
urr
ency
wei
ghts
and
exch
ange
rate
fle
xibili
ty
exch
ange
rate
fle
xibili
ty
Fran
kel
Fran
kel -- W
eiW
eiB
asic
Spe
cific
atio
nB
asic
Spe
cific
atio
n
%%Δ(Δ(
EESD
R/
SD
R/ t
hb
thb)=
C)=
C
+
[
w1*%
+
[
w1*%
Δ(Δ(EE
SD
R/J
ap.
SD
R/J
ap. )
+ w
2*%
)+ w
2*%
Δ(Δ(EE
SD
R/$
US
SD
R/$
US))
+ (
1+
(1-- w
1w
1-- w
2)*
%w
2)*
%Δ(Δ(
EESD
R/U
KSD
R/U
K)
])
]
+
+
ββ *[
%*[
%Δ(Δ(
EESD
R/
SD
R/ t
hb
thb)+
%)+
%ΔΔRR
]]
Fran
kel
Fran
kel -- W
eiW
eiB
asic
Est
imat
es o
f B
asic
Est
imat
es o
f β β
appr
ox.
appr
ox. 2
000
2000
−− 200
420
04
* I
MF
* I
MF-- d
esig
nat
ed b
aske
tdes
ignat
ed b
aske
t --peg
peg
-- .027
.027
20.
HK
20.
HK
.104
.104
10.
Van
uat
u*
10.
Van
uat
u*
0019.
Mal
aysi
a19.
Mal
aysi
a.1
61
.161
9.
Sam
oa*
9.
Sam
oa*
.001
.001
18.
18.
Den
mk
Den
mk..
.175
.175
8.
Aust
ralia
8.
Aust
ralia
.009
.009
17.
Latv
ia*
17.
Latv
ia*
.308
.308
7.
Pap.
N.G
.*7.
Pap.
N.G
.*.0
29
.029
16.
16.
Sey
chSey
ch.*.*
.366
.366
6.
Can
ada
6.
Can
ada
.029
.029
15.
Norw
ay15.
Norw
ay.3
68
.368
5.
Thai
land
5.
Thai
land
.031
.031
14.
Fiji*
14.
Fiji*
.398
.398
4.
Mex
ico
4.
Mex
ico
.035
.035
13.
Chin
a13.
Chin
a.6
36
.636
3.
Bots
wan
a*3.
Bots
wan
a*.0
73
.073
12.
Mal
ta*
12.
Mal
ta*
.675
.675
2.
Chile
2.
Chile
.101
.101
11.
Russ
ia11.
Russ
ia.7
36
.736
1.
Indones
ia1.
Indones
ia
Hyp
othe
sis
#1 fo
r too
Hyp
othe
sis
#1 fo
r too
-- low
bet
a:lo
w b
eta:
endo
gene
ityen
doge
neity
of %
of %
Δ(Δ(EE
SD
R/
SD
R/ th
bth
b ) )
%%Δ(Δ(EESDR/
SDR/thb
thb))
= C
= C
+
[
w1*%
+
[
w1*%
Δ(Δ(EE
SD
R/J
ap.
SD
R/J
ap. )
+ w
2*%
)+ w
2*%
Δ(Δ(EE
SD
R/$
US
SD
R/$
US))
+ (
1+
(1-- w
1w
1-- w
2)*
%w
2)*
%Δ(Δ(
EESD
R/U
KSD
R/U
K)
])
]
+
+
ββ *[
*[
%%Δ(Δ(EESDR/
SDR/thb
thb))
+ %
+ %
ΔΔR ]
R ]
Hyp
othe
sis
#2 fo
r too
Hyp
othe
sis
#2 fo
r too
-- low
bet
a:lo
w b
eta:
faul
ty re
stric
tion
that
cur
renc
y co
effic
ient
s fa
ulty
rest
rictio
n th
at c
urre
ncy
coef
ficie
nts
sum
to o
nesu
m to
one
%%Δ(Δ(
EESD
R/
SD
R/ t
hb
thb)=
C)=
C
+
[
+
[
w
1w
1*%
*%
Δ(Δ(EE
SD
R/J
ap.
SD
R/J
ap. )
+
)+ w
2w
2*%
*%
Δ(Δ(EE
SD
R/$
US
SD
R/$
US))
+
+ (
1(1-- w
1w
1-- w
2)
w2) *
%*%
Δ(Δ(EE
SD
R/U
KSD
R/U
K)
])
]
+
+
ββ *[
%*[
%Δ(Δ(
EESD
R/
SD
R/ t
hb
thb)
+ %
) +
%ΔΔR ]
R ]
Un
Un --
Res
trict
ing
the
Cur
renc
y W
eigh
tsR
estri
ctin
g th
e C
urre
ncy
Wei
ghts
Can
ada
2002
Can
ada
2002
-- 200
520
05
Fran
kel
Fran
kel --
Wei
Wei
Kam
inKam
inKam
inKam
inU
nre
strict
edU
nre
strict
ed
JPY
.324
.201
JPY
.324
.201
--
.061
.061
USD
.449
.
784
.024
USD
.449
.
784
.024
EU
R
.
337
.322
EU
R
.
337
.322
--
.360
.360
GBP
G
BP
-- .
110
.1
10
--.3
06
.306
--
.527
.527
EM
P
.
366
.4
41
.462
EM
P
.
366
.4
41
.462
Un
Un --
Res
trict
ing
the
Cur
renc
y W
eigh
tsR
estri
ctin
g th
e C
urre
ncy
Wei
ghts
Aus
tralia
200
0A
ustra
lia 2
000 --
2003
2003
Fran
kel
Fran
kel --
Wei
Wei
Kam
inKam
inKam
inKam
inU
nre
strict
edU
nre
strict
ed
JPY
.250
.
221
.449
JPY
.250
.
221
.449
USD
.294
.
397
.941
USD
.294
.
397
.941
EU
R
.
554
.
503
.902
EU
R
.
554
.
503
.902
GBP
G
BP
-- .
098
.0
98
--.1
21
.052
.121
.052
EM
P
.
175
EM
P
.
175
.1
75
.175
.170
.170
Hyp
othe
sis
#3 fo
r too
Hyp
othe
sis
#3 fo
r too
-- low
bet
as:
low
bet
as:
%%ΔΔ
R te
rm n
ot a
ccur
atel
y ca
ptur
ing
R te
rm n
ot a
ccur
atel
y ca
ptur
ing
exch
ange
mar
ket i
nter
vent
ion
exch
ange
mar
ket i
nter
vent
ion
%%Δ(Δ(
EESD
R/
SD
R/ t
hb
thb)=
C)=
C
+
[
w1*%
+
[
w1*%
Δ(Δ(EE
SD
R/J
ap.
SD
R/J
ap. )
+ w
2*%
)+ w
2*%
Δ(Δ(EE
SD
R/$
US
SD
R/$
US))
+ (
1+
(1-- w
1w
1-- w
2)*
%w
2)*
%Δ(Δ(
EESD
R/U
KSD
R/U
K)
])
]
+
+
ββ *[
%*[
%Δ(Δ(
EESD
R/
SD
R/ t
hb
thb)
+
) +
%%ΔΔRR
]]
Aus
tralia
Aus
tralia
Can
ada
Can
ada
Impl
icat
ions
Impl
icat
ions
••Res
erve
s dat
a nee
d t
o c
lean
sed o
f Res
erve
s dat
a nee
d t
o c
lean
sed o
f m
ove
men
ts n
ot
reflec
ting inte
rven
tions
move
men
ts n
ot
reflec
ting inte
rven
tions
to t
arget
the
exch
ange
rate
to t
arget
the
exch
ange
rate
••Sca
ling c
han
ges
in r
eser
ves
and
Sca
ling c
han
ges
in r
eser
ves
and
exch
ange
rate
s by
thei
r re
lative
ex
chan
ge
rate
s by
thei
r re
lative
va
rian
ce c
an b
oost
bet
ava
rian
ce c
an b
oost
bet
a’’ ss
••but
may
lea
d t
o m
isle
adin
g r
esults
if
but
may
lea
d t
o m
isle
adin
g r
esults
if
countr
y in
terv
enes
fre
quen
tly
countr
y in
terv
enes
fre
quen
tly
Does
est
imat
ing c
urr
ency
wei
ghts
and
Does
est
imat
ing c
urr
ency
wei
ghts
and
exch
ange
rate
fle
xibili
ty s
imultan
eousl
y ex
chan
ge
rate
fle
xibili
ty s
imultan
eousl
y le
ad t
o b
ette
r es
tim
ates
? le
ad t
o b
ette
r es
tim
ates
?
Sep
arat
ing
the
Cur
renc
y W
eigh
ts fr
om th
e E
MP
Sep
arat
ing
the
Cur
renc
y W
eigh
ts fr
om th
e E
MP
Can
ada
2002
Can
ada
2002
-- 200
320
03
Fran
kel
Fran
kel --
Wei
Wei
Kam
inKam
inKam
inKam
inU
nre
strict
edU
nre
strict
ed
(1)
(2)
(3)
(1)
(2)
(3)
JPY
.324
.
201
JPY
.324
.
201
-- .061
.435
.061
.435
-
---U
SD
.449
.784
.024
1.1
40
U
SD
.449
.784
.024
1.1
40
----
EU
R
.
337
.
322
EU
R
.
337
.
322
-- .360
.8
21
.3
60
.8
21
----
GBP
G
BP
-- .
110
.110
--
.306
.306
-- .527
.5
27
--.3
00
.3
00
----
EM
P
.
366
.4
41
.4
62
EM
P
.
366
.4
41
.4
62
----.4
43
.443
Sep
arat
ing
the
Cur
renc
y W
eigh
ts fr
om th
e E
MP
Sep
arat
ing
the
Cur
renc
y W
eigh
ts fr
om th
e E
MP
Fiji
2000
Fiji
2000
-- 200
320
03
Fran
kel
Fran
kel --
Wei
Wei
Kam
inKam
inKam
inKam
inU
nre
strict
edU
nre
strict
ed
(1)
(2)
(3)
(1)
(2)
(3)
JPY .0
86 .
099 .0
79 .
072
JPY .0
86 .
099 .0
79 .
072
----U
SD
.
229 .
267 .2
17 .
170
USD
.
229 .
267 .2
17 .
170
----EU
R .
187 .
170 .1
33 .
116
EU
R .
187 .
170 .1
33 .
116
----G
BP
.0
29 .
037 .0
22 .
034
GBP
.0
29 .
037 .0
22 .
034
----AU
D .
436 .
427 .4
28 .
465
AU
D .
436 .
427 .4
28 .
465
EM
P .0
31 .
033
EM
P .0
31 .
033 .
033
.033
----.1
77
.177
Sep
arat
ing
the
Cur
renc
y W
eigh
ts fr
om th
e E
MP
Sep
arat
ing
the
Cur
renc
y W
eigh
ts fr
om th
e E
MP
Thai
land
200
0Th
aila
nd 2
000 --
2003
2003
Fran
kel
Fran
kel --
Wei
Wei
Kam
inKam
inKam
inKam
inU
nre
strict
edU
nre
strict
ed
(1)
(2)
(3)
(1)
(2)
(3)
JPY .1
21 .
084
JPY .1
21 .
084 --
.028 .
364
.028 .
364
----U
SD
USD
--
1768 .
782 .5
27 .
623
1768 .
782 .5
27 .
623
----EU
R .
255 .
213 .0
25 .
274
EU
R .
255 .
213 .0
25 .
274
----G
BP
GBP
--
.043
.043 --
.079
.079 --
.161 .
040
.161 .
040
----KRW
.
022
KRW
.
022
SG
D .
068
SG
D .
068
AU
D .
107
AU
D .
107
MYR 1
768
MYR 1
768
EM
P .3
68 .
433 .
443
EM
P .3
68 .
433 .
443 -
---.3
21
.321
Con
clus
ion
Con
clus
ion
Inte
rest
ing a
nd p
rovo
cative
pap
erIn
tere
stin
g a
nd p
rovo
cative
pap
erN
ove
l m
ethodolo
gy
Nove
l m
ethodolo
gy
Hel
pfu
l fo
r co
untr
ies
that
may
tar
get
H
elpfu
l fo
r co
untr
ies
that
may
tar
get
m
ore
than
a s
ingle
curr
ency
more
than
a s
ingle
curr
ency
Req
uires
car
eful at
tention t
o d
ata,
Req
uires
car
eful at
tention t
o d
ata,
es
pec
ially
res
erve
ses
pec
ially
res
erve
sCom
ple
men
t to
, not
subst
itute
for,
Com
ple
men
t to
, not
subst
itute
for,
in
stitutional
anal
ysis
inst
itutional
anal
ysis