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Fear of floating and fear of pegging: An empirical anaysis of de facto exchange rate regimes in developing countries

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  • Zhou, Jizhong
  • von Hagen, Jürgen

Abstract

This paper uses a panel probit model with simultaneous equations to explain the joint determination of de facto and de jure exchange rate regimes in developing countries since 1980. We also derive an ordered-choice panel probit model to explain the causes of discrepancies between the two regime choices. Both models are estimated using simulation-based maximum likelihood methodsl. The results of the simultaneous equations model suggest that the two regime choices are dependent of each other and exhibit considerable state dependence. The ordered probit model provides evidence that regime discrepancies reflect an error-correction mechanism, and the discrepancies are persistent over time. --

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Bibliographic Info

Paper provided by ZEI - Center for European Integration Studies, University of Bonn in its series ZEI Working Papers with number B 31-2004.

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Date of creation: 2004
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Handle: RePEc:zbw:zeiwps:b312004

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Keywords: de facto exchange rate regimes; developing countries; simultaneous equations model; simulated maximum likelihood;

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  1. Ricardo Hausmann & Ugo Panizza & Ernesto H. Stein, 2000. "Why Do Countries Float the Way They Float?," Research Department Publications, Inter-American Development Bank, Research Department 4205, Inter-American Development Bank, Research Department.
  2. Jürgen von Hagen & Jizhong Zhou, 2005. "The choice of exchange rate regime: "An empirical analysis for transition economies" ," The Economics of Transition, The European Bank for Reconstruction and Development, The European Bank for Reconstruction and Development, vol. 13(4), pages 679-703, October.
  3. von Hagen, Jurgen & Zhou, Jizhong, 2005. "De facto and official exchange rate regimes in transition economies," Economic Systems, Elsevier, Elsevier, vol. 29(2), pages 256-275, June.
  4. Paul R. Masson, 2000. "Exchange Rate Regime Transitions," IMF Working Papers 00/134, International Monetary Fund.
  5. repec:fth:inadeb:418 is not listed on IDEAS
  6. Hélène Poirson, 2001. "How Do Countries Choose their Exchange Rate Regime?," IMF Working Papers 01/46, International Monetary Fund.
  7. Holden, Paul & Holden, Merle & Suss, Esther C, 1979. "The Determinants of Exchange Rate Flexibility: An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 61(3), pages 327-33, August.
  8. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521766555.
  9. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
  10. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
  11. Heckman, James J, 1978. "Dummy Endogenous Variables in a Simultaneous Equation System," Econometrica, Econometric Society, Econometric Society, vol. 46(4), pages 931-59, July.
  12. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, Elsevier, vol. 49(6), pages 1603-1635, August.
  13. Atish R. Ghosh & Anne-Marie Gulde & Jonathan D. Ostry & Holger C. Wolf, 1997. "Does The Nominal Exchange Rate Regime Matter?," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 97-09, New York University, Leonard N. Stern School of Business, Department of Economics.
  14. von Hagen, Jürgen & Zhou, Jizhong, 2004. "The Choice of Exchange Rate Regime in Developing Countries: A Multinational Panel Analysis," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4227, C.E.P.R. Discussion Papers.
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Cited by:
  1. von Hagen, Jurgen & Zhou, Jizhong, 2007. "The choice of exchange rate regimes in developing countries: A multinomial panel analysis," Journal of International Money and Finance, Elsevier, Elsevier, vol. 26(7), pages 1071-1094, November.
  2. von Hagen, Jürgen & Zhou, Jizhong, 2006. "The Interaction Between Capital Controls and Exchange Rate Regimes: Evidence from Developing Countries," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5537, C.E.P.R. Discussion Papers.
  3. Hans Keiding & Mette J. Knudsen, 2005. "Rational Fear of Floating: A Simple Model of Exchange Rates and Income Distribution," Discussion Papers 05-03, University of Copenhagen. Department of Economics.

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