How do Countries Choose Their Exchange Rate Regime?

Poirson Ward, Helene

Abstract

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How do Countries Choose Their Exchange Rate Regime?

Helene Poirson Ward

International Monetary Fund (IMF) - Research Department

April 2001

IMF Working Paper No. 01/46

Abstract:
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, O10

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Date posted: January 29, 2006

Suggested Citation

Poirson Ward, Helene, How do Countries Choose Their Exchange Rate Regime? (April 2001). IMF Working Paper, Vol. , pp. 1-34, 2001. Available at SSRN: http://ssrn.com/abstract=879438

Contact Information

Helene Poirson Ward (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States