A number of countries, like Brazil, Indonesia, Thailand or Russia, moved from a soft peg to a managed or independent float. 4 However, expectations that this trend would continue did not materialise. Focusing on a group of 24 selected emerging economies 5 the distribution of exchange rate regimes has been basically stable between 2002 and 2007 (Chart 1).
6 Consistency with the “impossible trinity” theorem requires that countries sustaining a high degree of exchange rate stability have to be either relatively closed to international capital flows or have little need for a domestic oriented monetary policy that diverges strongly from the stance taken in advanced economies. Let me quickly review the evidence on both dimensions.