Exchange Rate Choices of Microstates

Author/Editor:

Patrick A. Imam

Publication Date:

January 1, 2010

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

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:

In this paper we first explain why most microstates (countries with less than 2 million inhabitants) have gained independence only in the last 30 years. Despite the higher costs and risks microstates face, their ability to better accommodate local preferences combined with a more integrated world economy probably explains why the benefits of independence have risen. We explain why microstates at independence have chosen either dollarization, currency board arrangements, or fixed exchange rates rather than more flexible forms of exchange rate systems. We then, using the Geweke-Hajvassiliou-Keane multivariate normal simulator, model empirically the determinants of each of the different fixed exchange rate regimes in microstates and analyze the policy implications.

Series:

Working Paper No. 2010/012

Subject:

Conventional peg Currencies Currency boards Exchange rate arrangements Exchange rates Foreign exchange Money

English

Publication Date:

January 1, 2010

ISBN/ISSN:

9781451962000/1018-5941

Stock No:

WPIEA2010012

Pages:

48

Please address any questions about this title to publications@imf.org