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How Do Countries Choose Their Exchange Rate Regime?

Author/Editor: Poirson, Hélène
Authorized for Distribution: May 1, 2001
Electronic Access: Free Full Text (PDF file size is 1,074KB)
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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(s): Exchange rate regimes | Developing countries | Dollarization | Monetary unions
Author's keyword(s): Exchange rates | developing countries | dollarization | optimal currency areas
 
English  
    Published:   May 1, 2001        
    ISBN/ISSN:   1934-7073   Format:   Paper
    Stock No:   WPIEA0462001   Pages:   33
    Price:   US$15.00
       
     
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