presents the estimation methods. Section 4 deals with the identification of regimes, exits
and regime durations. It discusses the various classifications of exchange rate regimes
that are available and motivates our particular choice. We also describe the explanatory
variables that are included in the estimation of the semi-parametric model. Section 5
provides the results and section 6 concludes.
2 Review of the literature
Some recent empirical work studies the determinants of exits from fixed exchange rate
regimes. These studies differ along several dimensions: exchange rate regime classifica-
tion, identification of an exit, type of exit, time period, sample of countries, econometric
methodology, and explanatory variables.
The source of data varies greatly across studies. In turn, the procedure for the identifi-
cation of an exit depends largely on the data that are used. Klein and Marion (1997) focus
on official end-of-month exchange rates retrieved from the IMF’s International Financial
Statistics and define an exit as the end of a period during which there exists a particular
fixed value of the currency with respect to the U.S. dollar. Tudela (2004) combines data
for the nominal exchange rate, the short-term interest rate and international reserves to
build an indicator variable of exchange market pressure. In this context, an exit occurs
whenever the constructed indicator exceeds a given threshold value, thereby ending a tran-
quil period. Setzer (2004) uses the de facto exchange rate regime classification proposed
by Levy-Yeyati and Sturzenegger (2005).
These three studies do not really focus on exits from fixed exchange rate regimes.
The first two are more related to the literature dealing with the determinants of currency
crises, along the lines of Eichengreen, Rose and Wyplosz (1995), and with the quest for
early warning indicators of such crises, such as Kaminsky, Lizondo and Reinhart (1998).
Moreover, as we discuss below, the de facto classification used by Setzer (2004) does not
identify regimes properly. Looking at the stability of the exchange rate and other variables
over time may identify an exit when some parameter describing the exchange rate regime