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The political economy of exchange rate regime determination: Theory and evidence

  • Kimakova, Alena
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    This paper studies exchange rate regime choice from a positive perspective by modeling the interplay of monetary and fiscal policy, credibility and financial market microstructure as factors influencing the decision on de facto regime. The model shows how a small open economy reliant on foreign sources of financing is likely to opt for a stable regime. Furthermore, a stable political environment with a high degree of accountability is conducive to choosing a flexible regime. The findings suggest that flexible rather than fixed exchange rate regimes provide more fiscal discipline.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0939-3625(08)00049-6
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    Article provided by Elsevier in its journal Economic Systems.

    Volume (Year): 32 (2008)
    Issue (Month): 4 (December)
    Pages: 354-371

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    Handle: RePEc:eee:ecosys:v:32:y:2008:i:4:p:354-371
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