This paper studies the transition between exchange rate regimes using a Markov chain model with time-varying transition probabilities. The probabilities are parameterized as nonlinear functions of variables suggested by the currency crisis and optimal currency area literature. Results using annual data indicate that inflation and, to a lesser extent, output growth and trade openness help explain the exchange rate regime transition dynamics. Copyright The editors of the "Scandinavian Journal of Economics", 2005 .
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Michael Kremer & Alexei Onatski & James Stock, 2001.
"Searching for Prosperity,"
NBER Working Papers
8250, National Bureau of Economic Research, Inc.
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Guillermo A. Calvo & Carmen M. Reinhart, 2000.
"Fear of Floating,"
NBER Working Papers
7993, National Bureau of Economic Research, Inc.
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