Why Do Countries Peg the Way They Peg? The Determinants of Anchor Currency Choice

World Economy & Finance Research Programme Working Paper No. 0009

36 Pages Posted: 1 Nov 2006

See all articles by Christopher M. Meissner

Christopher M. Meissner

University of Cambridge - Faculty of Economics and Politics; National Bureau of Economic Research (NBER)

Nienke Oomes

International Monetary Fund (IMF)

Date Written: March 2006

Abstract

Conditional on choosing a pegged exchange rate regime, what determines the currency to which countries peg or anchor their exchange rate? This paper aims to answer this question using a panel multinomial logit framework, covering more than 100 countries for the period 1980-1998. We find that trade network externalities are a key determinant of anchor currencies in the international monetary system. Other factors found to be related to anchor currency choice include the symmetry of output co-movement, the currency denomination of debt, and legal or colonial origins.

Keywords: exchange rate regime, anchor, network externalities, optimal currency area, international currency, de facto

JEL Classification: E42, F02, F33

Suggested Citation

Meissner, Christopher M. and Oomes, Nienke, Why Do Countries Peg the Way They Peg? The Determinants of Anchor Currency Choice (March 2006). World Economy & Finance Research Programme Working Paper No. 0009, Available at SSRN: https://ssrn.com/abstract=941176 or http://dx.doi.org/10.2139/ssrn.941176

Christopher M. Meissner (Contact Author)

University of Cambridge - Faculty of Economics and Politics ( email )

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

HOME PAGE: http://www.econ.cam.ac.uk/faculty/meissner/index.htm

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nienke Oomes

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
87
Abstract Views
880
rank
335,417
PlumX Metrics