The duration of fixed exchange rate regimes

exchange rate regime will end. Indeed, it may be that the pattern of duration dependence
shown by the non-parametric estimator is explained by the time-varying behaviour of ex-
planatory factors. In the extreme, we could observe that the time spent within a fixed
exchange rate regime could have no effect on the conditional probability of an exit, once
that the appropriate time-varying factors are taken into account.

4 Data

The identification of a duration requires the definition of a time origin, a time scale, and an
event that ends the duration. We have argued that most studies do not deal with exchange
rate regimes but rather with spells of exchange rate stability. Focusing exclusively on the
behaviour of the nominal exchange rate or on an index of exchange market pressure may
lead us to conclude that a regime changes, when in fact only some parameter describing
this regime changes. Therefore, we need a classification of exchange rate regimes that takes
this problem into account.

4.1 Exchange rate regime classification

Most empirical studies on exchange rate regimes have relied on the classification available
from the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions
which is constructed according to official declarations made by national governments once
a year. It has been criticized, in particular on the ground that countries do not always do
what they say they are doing. Countries that declare a flexible exchange rate regime often
intervene in the foreign exchange market to such an extent that in practice there is little
difference in the behaviour of the nominal exchange rate relative to countries that have
explicit fixed exchange rates (Calvo and Reinhart, 2002). Moreover, repeated devaluations
of fixed exchange rate parities, especially in countries prone to high inflation, make the
exchange rate regime look like a flexible arrangement.

Recent new classifications have been constructed to address the shortcomings of the
IMF’s de jure classification. Bubula and Otker-Robe (2002) combine qualitative and quan-

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