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

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  • Meissner, C.M.
  • Oomes, N.

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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Bibliographic Info

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

Note: IE, MA
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Web page: http://www.econ.cam.ac.uk/index.htm

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

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