Post-crisis exchange rate policy in five Asian countries:: Filling in the "hollow middle"?

Following the 1997-1998 financial turmoil, crisis countries in Asia moved away from exchange rate arrangements featuring "soft" exchange rate pegs with open capital accounts. While this development is superficially consistent with the bipolar view of exchange rate regimes and the "hollow middle" hypothesis, some observers have claimed that, despite the changes in their de jure exchange rate regimes, the crisis countries' exchange rate policies have in fact been very similar in the post- and pre-crisis periods. This paper analyzes the evidence and concludes that, except for Malaysia, which adopted an official peg buttressed by capital controls, the other crisis countries have actually moved to intermediate regimes in which they are floating more than before, though less than "real" floaters do. The intermediate exchange rate policies pursued by most of the crisis countries during the post-crisis can be justified on second-best arguments. (C) 2003 Elsevier Inc. All rights reserved.