Why peg? The role of capital mobility and financial intermediation
AbstractMany economists argue that the growth of international capital mobility has made the maintenance of pegged exchange rates more costly, forcing developing states to choose alternative arrangements. But some states do not simply abandon pegged exchange rates as their exposure to capital mobility rises. Some states abandon pegs long before a crisis can erupt, while others maintain pegs until the speculative pressures became unbearable. Why, in an environment of growing capital mobility, do some states maintain pegs longer than others do? One reason is that the more that bank lending dominates investment in a country, the more likely that state is to hold on to a pegged exchange rate. When banks have accumulated significant amounts of foreign debt they lobby for exchange rate stability. In a bank-dominated financial system, a concentrated banking sector can organize easily and use its crucial role in the economy to exert influence over economic policy. This article presents new evidence from statistical tests on 61 developing countries that confirm that states with deeper banking systems are more likely to peg their exchange rates, in spite of growing capital mobility.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal International Review of Applied Economics.
Volume (Year): 23 (2009)
Issue (Month): 5 ()
Contact details of provider:
Web page: http://www.tandfonline.com/CIRA20
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If references are entirely missing, you can add them using this form.