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

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Author Info
Meissner, C.M.
Oomes, N.

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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 currency choice, implying that there are multiple steady states for the distribution 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.

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Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0643.

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Length: 35
Date of creation: Jun 2006
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Handle: RePEc:cam:camdae:0643

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

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Find related papers by JEL classification:
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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