Exchange Rate Choices of Microstates
IMF Working Papers, January 1, 2010
Source details
- Canonical URL
- Exchange Rate Choices of Microstates
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Bibliographic details
- Authors: Patrick A. Imam
- Published: January 1, 2010
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451962000.001
Overview and purpose
- Paper explains why most microstates (countries with less than 2 million inhabitants) have gained independence only in the last 30 years.
- Investigates why microstates at independence have chosen dollarization, currency board arrangements, or fixed exchange rates rather than more flexible exchange rate systems.
- Empirically models the determinants of each of the different fixed exchange rate regimes in microstates using the Geweke-Hajvassiliou-Keane multivariate normal simulator.
- Analyzes policy implications of regime choices for microstates.
Key findings
- Despite higher costs and risks, microstates’ ability to better accommodate local preferences combined with a more integrated world economy probably explains why the benefits of independence have risen.
- At independence, microstates predominantly opt for:
- dollarization
- currency board arrangements
- fixed exchange rates
- More flexible exchange rate systems are less commonly chosen by microstates at independence.
Methodology
- Empirical modeling performed using the Geweke-Hajvassiliou-Keane multivariate normal simulator.
Policy implications (analytical focus)
- The choice among dollarization, currency boards, and fixed exchange rates in microstates has distinct policy implications that are analyzed in the paper (policy implications are presented as part of the analysis).
Content in this bundle
- Exchange Rate Choices of Microstates; by Patrick Imam; IMF Working Paper 10/12; January 1, 2010.