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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 (University of Milan - Bicocca)
Patrizio Tirelli (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'? In this paper we show that a stable socio-political and an efficient political decision- making process are a necessary prerequisite for choosing a peg and sticking to it. Whenever a country is implementing a de facto peg the same factors signal that the peg is more likely to be announced. Finally these factors explain why regime choices are not reversed.

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Paper provided by EconWPA in its series International Finance with number 0502001.

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Length: 39 pages
Date of creation: 04 Feb 2005
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Handle: RePEc:wpa:wuwpif:0502001

Note: Type of Document - pdf; pages: 39
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Related research
Keywords: Exchange Rate regime Choice Exchange Rate Regime Classification Political Systems;

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Find related papers by JEL classification:
F3 - International Economics - - International Finance
F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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