Bi-Polar Disorder: Exchange Rate Regimes, Economic Crises and the IMF

Abstract

Over the course of the 1990s economists appeared to favour exchange rate regimes that were either completely flexible or rigidly fixed through mechanisms such as currency boards. According to this "bipolar" view of exchange rates, intermediate regimes were deemed to be ineffective and prone to crisis. This paper examines the link between exchange rate regimes and International Monetary Fund (IMF) programme use and finds fairly strong evidence that countries with intermediate exchange rate regimes are less likely to go to the IMF than others. To the extent that International Monetary Fund (IMF) programmes are a proxy for balance of payments difficulties, this finding supports the more recent, nuanced, literature on exchange rate regime choice.