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Consistency versus credibility: how do countries choose their exchange rate regime?

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Author Info
Fabrizio Carmignani () (United Nations Economic Commission for Europe)
Emilio Colombo () (Department of Economics, University of Milan-Bicocca)
Patrizio Tirelli () (Department of Economics, University of Milan-Bicocca)

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Abstract

The 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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File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper85.pdf
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File Function: First version, 2004
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Publisher Info
Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 85.

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Length: 38 pages
Date of creation: Oct 2004
Date of revision: Feb 2005
Handle: RePEc:mib:wpaper:85

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Find related papers by JEL classification:
F31 - International Economics - - International Finance - - - Foreign Exchange
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior

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