Consistency versus credibility: how do countries choose their exchange rate regime?
AbstractThe empirical distinction between de facto and de jure exchange rate regimes raises a number of interesting questions. Which factors may induce a de facto peg? Why do countries enforce a peg but do not announce it? Why do countries \break their promises"? We show that a stable socio-political and an e±cient political decision-making process are a necessary prerequisite for choosing a peg and sticking to it, challenging the view that sees the exchange rate as a commitment device. Policymakers seem rather concerned with regime sustainability in the face of adverse economic and socio political fundamentals.
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Bibliographic InfoPaper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 85.
Length: 38 pages
Date of creation: Oct 2004
Date of revision: Feb 2005
Other versions of this item:
- Fabrizio Carmignani & Emilio Colombo & Patrizio Tirelli, 2005. "Consistency versus credibility: how do countries choose their exchange rate regime?," International Finance 0502001, EconWPA.
- F31 - International Economics - - International Finance - - - Foreign Exchange
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
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