Fear of Floating and Fear of Pegging: An Empirical Analysis of De Facto Exchange Rate Regimes in Developing Countries
Jürgen Von Hagen
University of Bonn - Institute of Economic Policy; Centre for Economic Policy Research (CEPR)
University of Bonn - Center for European Integration Studies (ZEI)
CEPR Discussion Paper No. 5530
This paper uses a panel probit model with simultaneous equations to explain the joint determination of de facto and de jure exchange rate regimes in developing countries since 1980. We also derive an ordered-choice panel probit model to explain the causes of discrepancies between the two regime choices. Both models are estimated using simulation-based maximum likelihood methods. The results of the simultaneous equations model suggest that the two regime choices are dependent of each other and exhibit considerable state dependence. The ordered probit model provides evidence that regime discrepancies reflect an error-correction mechanism, and the discrepancies are persistent over time.
Number of Pages in PDF File: 30
Keywords: De facto exchange rate regimes, developing countries, simultaneous equations model, simulated maximum likelihood
JEL Classification: C35, F33, F41working papers series
Date posted: June 15, 2006
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