## How Do Countries Choose their Exchange Rate Regime?

_IMF Working Papers, May 1, 2001_

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## Bibliographic details
- Authors: Hélène Poirson
- Published: May 1, 2001
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451846553.001

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### Summary
- Study scope: 93 countries during 1990-98.
- Main analytical approach: cross-country analysis of variations in international reserves and nominal exchange rates; regression analysis of regime choice.
- Key empirical distinctions:
  - (i) truly fixed pegs and independent floats differ significantly from other regimes
  - (ii) significant discrepancies exist between de jure and de facto flexibility

### Major empirical findings
- Fixed pegs and independent floats are empirically distinct from other exchange rate arrangements based on observed variations in international reserves and nominal exchange rates.
- There are significant discrepancies between de jure classifications of exchange rate regimes and de facto exchange rate flexibility.

### Determinants identified by regression results
- Political factors:
  - political instability
  - government temptation to inflate
- Reserve adequacy:
  - variations in international reserves influence regime choice
- Currency substitution:
  - dollarization (currency substitution)
- Exchange rate risk:
  - exchange rate risk exposure
- Optimal currency area criteria and capital movements:
  - some traditional optimal currency area criteria matter, in particular capital mobility
- The regressions highlight the combined influence of the above factors on exchange rate regime selection.

### Research and publication metadata
- Publication type: IMF Working Papers
- Pages: 33
- Volume: 2001
- Issue: 046
- Series: Working Paper No. 2001/046
- DOI: https://doi.org/10.5089/9781451846553.001
- ISBN: 9781451846553
- ISSN: 1018-5941

*Hélène Poirson, "How Do Countries Choose their Exchange Rate Regime?", May 1, 2001.*

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