Twenty five years of floating: some observations

Since the collapse of the Bretton Woods System, countries have adopted a variety of different exchange arrangements. The largest industrial countries adopted either a floating or a block floating system, while other countries chose a fixed or a crawling peg arrangement. We offer a few observations that suggest floating has not been all it was made out to be. The major reason for this has been the increasing mobility of capital, coupled with the heightened importance of macroeconomic policy credibility; other contributing factors have been real wage rigidity and large exchange rate volatility.