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Why do countries peg the way they peg? The determinants of anchor currency choice

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  • Meissner, Christopher M.
  • Oomes, Nienke

Abstract

What determines the currency to which countries peg or "anchor" their exchange rate? Data for over 100 countries between 1980 and 1998 reveal trade network externalities are a key determinant of anchor currency choice. This implies currency anchoring strategies could be sub-optimal. Hence, certain currencies could be oversubscribed as anchors, and changes in anchor choices of a small number of countries can have a large and rapid impact on the international monetary system. Other factors related to anchor choice include the symmetry of output co-movements and the currency denomination of liabilities.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 28 (2009)
Issue (Month): 3 (April)
Pages: 522-547

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Handle: RePEc:eee:jimfin:v:28:y:2009:i:3:p:522-547

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Web page: http://www.elsevier.com/locate/inca/30443

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Keywords: Exchange rate regime Anchor Network externalities Optimal currency area International currency De facto policy;

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