The authors proposed a new de facto classification of exchange rate regimes that reflected the actual rather than the announced policies, providing an alternative as well as a complement to the standard de jure approach. Sturzenegger and Levy Yeyati managed to define the exchange rate regimes according to the behavior of three classification variables: changes in the nominal exchange rate, the volatility of these changes, and the volatility of international reserves. Underlying the selection of these variables they made a textbook definition of exchange rate regimes, where fixed exchange rate regimes were associated with changes in international reserves aimed at reducing the volatility in the nominal exchange rate, and flexible exchange rates were characterized by substantial volatility in nominal rates with relatively stable reserves. Thus, the combined behavior of these three classifications was sufficient to determine the regime to which each country belonged at any point in time.
