The Political Economy of Exchange Rate Regimes in Transition Economies

35 Pages Posted: 19 May 2008

See all articles by Jeffry Frieden

Jeffry Frieden

affiliation not provided to SSRN

David A. Leblang

University of Virginia; University of Virginia - College of Arts and Sciences; University of Virginia - Woodrow Wilson Department of Politics; University of Virginia - Frank Batten School of Leadership and Public Policy

Neven T. Valev

affiliation not provided to SSRN

Date Written: April 2008

Abstract

We show that political economy factors play an important role in shaping the exchange rate policies of transition economies. We argue, among other things, that tradables producers prefer a floating rate to allow active exchange rate policy to affect their competitiveness, while internationally exposed sectors prefer a fixed rate to provide currency stability. We carry out a quantitative analysis of the de facto exchange rate behavior of 21 countries over the period 1992-2004. We find support for our arguments, along with some counter-intuitive results, for example associating democracy with a pegged currency and trade concentration with a floating currency. Our empirical results serve as the basis for predictions regarding the adoption of the euro in the EU accession countries and other countries in Central and Eastern Europe.

Keywords: Political economy, Exchange rate regimes, Transition economies, EMU, euro

JEL Classification: F31, F33

Suggested Citation

Frieden, Jeffry and Leblang, David A. and Valev, Neven T., The Political Economy of Exchange Rate Regimes in Transition Economies (April 2008). Available at SSRN: https://ssrn.com/abstract=1133567 or http://dx.doi.org/10.2139/ssrn.1133567

Jeffry Frieden (Contact Author)

affiliation not provided to SSRN ( email )

David A. Leblang

University of Virginia ( email )

PO Box 400787
University of Virginia
Charlottesville, VA 22904
United States

University of Virginia - College of Arts and Sciences ( email )

VA
United States

University of Virginia - Woodrow Wilson Department of Politics ( email )

PO Box 400787
University of Virginia
Charlottesville, VA 22904
United States

University of Virginia - Frank Batten School of Leadership and Public Policy ( email )

235 McCormick Rd.
P.O. Box 400893
Charlottesville, VA 22904-4893
United States

Neven T. Valev

affiliation not provided to SSRN

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