Determinants of the Choice of Exchange Rate Regimes in Six Central American Countries: An Empirical Analysis

Author/Editor: Papaioannou, Michael G.
Publication Date: March 01, 2003
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: This paper examines whether decisions about the appropriate exchange rate regime in six Central American countries were based on longer-run economic fundamentals or on the confluence of historical and political circumstances. To uncover any actual relationship both across countries and across time, we estimate several probit and multinomial logit models of exchange rate regime choice with data spanning the period 1974-2001. We find that theoretical long-run determinants, such as trade openness, export share with the major trading partner, economic size, and per capita income, are adequate, but not robust, predictors of exchange rate regime choice. However, we were not able to establish a statistically significant association between the terms of trade fluctuations or capital account openness and a particular regime in any specification using our sample.
Series: Working Paper No. 03/59
Subject(s): Exchange rate regimes | Costa Rica | El Salvador | Guatemala | Honduras | Nicaragua | Panama

Author's Keyword(s): Exchange Rate Regimes | Central American Countries
Publication Date: March 01, 2003
ISBN/ISSN: 1934-7073 Format: Paper
Stock No: WPIEA0592003 Pages: 27
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