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Exploring different views of exchange rate regime choice

  • Carmignani, Fabrizio
  • Colombo, Emilio
  • Tirelli, Patrizio

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 environment and an efficient 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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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 27 (2008)
Issue (Month): 7 (November)
Pages: 1177-1197

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Handle: RePEc:eee:jimfin:v:27:y:2008:i:7:p:1177-1197
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