How Do Countries Choose their Exchange Rate Regime?
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Summary:
This paper investigates the determinants of exchange rate regime choice in 93 countries during 1990-98. Cross-country analysis of variations in international reserves and nominal exchange rates shows that (i) truly fixed pegs and independent floats differ significantly from other regimes and (ii) significant discrepancies exist between de jure and de facto flexibility. Regression results highlight the influence of political factors (political instability and government temptation to inflate), adequacy of reserves, dollarization (currency substitution), exchange rate risk exposure, and some traditional optimal currency area criteria, in particular capital mobility, on exchange rate regime selection.
Series:
Working Paper No. 2001/046
Subject:
Conventional peg Exchange rate arrangements Exchange rate flexibility Exchange rate risk Exchange rates Financial regulation and supervision Foreign exchange
English
Publication Date:
May 1, 2001
ISBN/ISSN:
9781451846553/1018-5941
Stock No:
WPIEA0462001
Pages:
33
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