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Political stability and credibility of currency board

Author

Listed:
  • Feng, Shu
  • Fu, Liang
  • Ho, Chun-Yu
  • Alex Ho, Wai-Yip

Abstract

Do currency boards offer protection against self-fulling speculative attacks? This paper examines the credibility of currency boards of Argentina, Bulgaria, Estonia, Hong Kong, Latvia, and Lithuania. We employ a Bayesian Markov regime-switching model to analyze the role of economic fundamentals and self-fulfilling expectations in accounting for the credibility of the currency board. We find that the credibility of our sample currency boards is all subject to self-fulfilling runs. We also find that the political stability of adopting economies relates to the credibility of their currency boards and explains a few self-fulfilling runs of their currency boards.

Suggested Citation

  • Feng, Shu & Fu, Liang & Ho, Chun-Yu & Alex Ho, Wai-Yip, 2023. "Political stability and credibility of currency board," Journal of International Money and Finance, Elsevier, vol. 137(C).
    • Handle: RePEc:eee:jimfin:v:137:y:2023:i:c:s0261560623001122
    DOI: 10.1016/j.jimonfin.2023.102911
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    More about this item

    Keywords

    Fixed exchange rate; Regime switching; Political economy;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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