How do Countries Choose Their Exchange Rate Regime?
International Monetary Fund (IMF) - Research Department
IMF Working Paper No. 01/46
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.
Number of Pages in PDF File: 34
Keywords: exchange rates, developing countries, dollarization, optimal currency areas
JEL Classification: F33, F41, O10working papers series
Date posted: January 29, 2006
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