For a variety of reasons. First, the empirical part of the study covers countries in all regions, so international or macro economists in Korea, for example, may be just as interested in the issue as their counterparts in Peru. For theorists, Fear of Floating presents sets of empirical regularities or stylized facts that call out for more than one explanation. For policymakers across many parts of the world or multilateral institutions like the International Monetary Fund, it is a practical matter that they have to confront when conducting or designing monetary/exchange rate policy.

The paper presents compelling evidence that actual policies can systematically be very different from those that are announced by governments and central banks. Specifically, when it comes to the exchange rate, many countries, irrespective of whether they are advanced wealthy economies or struggling developing ones have shown considerable Fear of Floating. Policymakers may claim that they are allowing the exchange rate to fluctuate freely and be determined by market forces, but more often than not the data do not support these claims. The paper also discusses various reasons and presents a model to explain the phenomenon of Fear of Floating.

Prior to becoming an academic, I worked for several years as an economist at the International Monetary Fund (my coauthor Guillermo Calvo was also there at the time). There I began to discern what can be best described as anecdotal evidence of Fear of Floating. For instance, prior to its December 1994 currency crisis, Mexico—in principle—had an ever-widening exchange rate band, which should have yielded greater exchange rate flexibility, when in practice the central bank was keeping the dollar/peso exchange rate fixed. Similarly, many of the Asian economies, while declaring that their exchange rates were floating, were in fact also keeping their exchange rates fixed relative to the US dollar. These observations called for a systematic investigation of whether Fear of Floating was a more pervasive phenomenon.