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How do Macroeconomic and Political Variables Affect the Flexibility of Exchange Rate Regime?

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  • Mehmet Guclu

    ()
    (Ege University, Faculty of Economics and Administrative Siences, Department of Economics)

Abstract

The choice of exchange rate regime has become one of the most important issues once more in many economies after the financial crises in recent years. In the wake of the financial crises, many countries, especially emerging market economies, opted for floating exchange rate regimes by forsaking the pegged regimes. Consequently, an old debate on the choice and determinants of exchange rate regimes has been triggered. Economists have started to debate what appropriate exchange rate regime for an economy is. When the tendency in recent years is taken into consideration, the choice of exchange rate regime of the countries, especially emerging economies, needs to be analyzed. To do this, in this paper, we attempt to uncover how emerging market economies choose their exchange rate regimes. In other words, we try to find the economic and political factors underlying the choice of exchange rate regimes. The study includes 25 emerging market economies over the period 1970-2006. We use random effect ordered probit model in order to find the long run economic and political determinants of exchange rate regimes for emerging economies. The determinants of both the de jure and de facto exchange regimes are empirically analyzed in the paper.

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Bibliographic Info

Article provided by Ege University Faculty of Economics and Administrative Sciences in its journal Ege Academic Review.

Volume (Year): 9 (2009)
Issue (Month): 2 ()
Pages: 823-835

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Handle: RePEc:ege:journl:v:9:y:2009:i:2:p:823-835

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Web page: http://iibf.ege.edu.tr/ENG/
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Keywords: Exchange Rate Regime; Emerging Market;

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  1. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear Of Floating," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 379-408, May.
  2. von Hagen, Jürgen & Zhou, Jizhong, 2002. "The choice of exchange rate regimes: An empirical analysis for transition economies," ZEI Working Papers B 03-2002, ZEI - Center for European Integration Studies, University of Bonn.
  3. Eduardo Levy-Yeyati & Federico Sturzenegger & Iliana Reggio, 2009. "On the endogeneity of exchange rate regimes," Economics Working Papers we098374, Universidad Carlos III, Departamento de Economía.
  4. Agnieszka Markiewicz, 2005. "Choice of Exchange Rate Regime in Central and Eastern European Countries: an Empirical Analysis," Center for Economic Studies - Discussion papers ces0501, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  5. von Hagen, Jurgen & Zhou, Jizhong, 2007. "The choice of exchange rate regimes in developing countries: A multinomial panel analysis," Journal of International Money and Finance, Elsevier, vol. 26(7), pages 1071-1094, November.
  6. Collins, Susan M., 1996. "On becoming more flexible: Exchange rate regimes in Latin America and the Caribbean," Journal of Development Economics, Elsevier, vol. 51(1), pages 117-138, October.
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