How Do Countries Choose their Exchange Rate Regime?

Author/Editor:

Helene Poirson Ward

Publication Date:

May 1, 2001

Electronic Access:

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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 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. 01/46

Subject:

Developing countries Dollarization Exchange rate regimes Exchange rates Monetary unions

English

Publication Date:

May 1, 2001

ISBN/ISSN:

9781451846553/1018-5941

Stock No:

WPIEA0462001

Format:

Paper

Pages:

33

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