Carmen M. Reinhart and Kenneth S. Rogoff present a novel approach to classifying historical exchange rate regimes, emphasizing the use of extensive data on market-determined parallel exchange rates. Their "natural" classification algorithm reveals significant differences between official and de facto exchange rate arrangements, suggesting that the post-war history of exchange rate policies is more complex than commonly believed. Key findings include: 1. **Dual and Multiple Rates**: Dual or multiple exchange rates were more common than previously thought, with 45% of countries in 1950 having dual rates. 2. **Bretton Woods Impact**: The breakup of the Bretton Woods system had a less dramatic impact on most exchange rate regimes, with many countries maintaining de facto pegs under the guise of floating rates. 3. **Exchange Rate Flexibility**: De facto floating was prevalent during the Bretton Woods era, and many official pegs were actually managed or freely floating. 4. **Crawling Pegs**: Crawling pegs or narrow bands were the most popular exchange rate regime over modern history, particularly in emerging Asia and the Western Hemisphere. 5. **High Inflation**: Freely falling exchange rates, associated with high inflation, were more common than freely floating rates, highlighting the importance of distinguishing between these regimes. The authors argue that the standard classification methods used in previous studies are inadequate and often misleading, as they fail to account for dual or parallel markets. Their new classification scheme provides a more accurate picture of exchange rate policies and their economic implications, suggesting that the impact of exchange rate regimes on growth, trade, and inflation may be more significant than previously thought.Carmen M. Reinhart and Kenneth S. Rogoff present a novel approach to classifying historical exchange rate regimes, emphasizing the use of extensive data on market-determined parallel exchange rates. Their "natural" classification algorithm reveals significant differences between official and de facto exchange rate arrangements, suggesting that the post-war history of exchange rate policies is more complex than commonly believed. Key findings include: 1. **Dual and Multiple Rates**: Dual or multiple exchange rates were more common than previously thought, with 45% of countries in 1950 having dual rates. 2. **Bretton Woods Impact**: The breakup of the Bretton Woods system had a less dramatic impact on most exchange rate regimes, with many countries maintaining de facto pegs under the guise of floating rates. 3. **Exchange Rate Flexibility**: De facto floating was prevalent during the Bretton Woods era, and many official pegs were actually managed or freely floating. 4. **Crawling Pegs**: Crawling pegs or narrow bands were the most popular exchange rate regime over modern history, particularly in emerging Asia and the Western Hemisphere. 5. **High Inflation**: Freely falling exchange rates, associated with high inflation, were more common than freely floating rates, highlighting the importance of distinguishing between these regimes. The authors argue that the standard classification methods used in previous studies are inadequate and often misleading, as they fail to account for dual or parallel markets. Their new classification scheme provides a more accurate picture of exchange rate policies and their economic implications, suggesting that the impact of exchange rate regimes on growth, trade, and inflation may be more significant than previously thought.