De facto classification of monetary regimes

Abstract

In the field of research on monetary policies, there is often uncertainty about which regime each Central Bank is carrying out and whether they truly implement what they claim to do. This investigation aims to propose a classification of monetary regimes based upon members' actual, de facto , arrangements that may differ from the officially announced. Contrasting the de jure regimes -built upon what countries declare to be running- from the de facto -based on what actually happens- leads to a more accurate classification of monetary regimes implemented by countries in practice. The methodology employed is based on the use of cluster analysis that groups cases according to similarities in the behavior of the three variables of reference: nominal exchange rate, interest rate, and the monetary base. The study attempts to generate useful information for those who study the implications of the different regimes by exposing clearly what countries have been doing in terms of monetary policy. The following thesis will be limited on building a classification and describing the most apparent trends that took place during the past forty-six years. However, on average, evidence supports that inflation targeting and exchange rate monetary regimes are the most employed ones.