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The Viability of Fixed Exchange Rate Commitments: Does Politics Matter? A Theoretical and Empirical Investigation

  • Pierre-Guillaume Méon

    ()

  • Jean-Marc Rizzo

    ()

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    This article studies the connection between political instability and the sustainability of an exchange rate regime. A model based on the credibility of monetary policy shows that political unrest should be correlated with the adoption of flexible exchange rates. That intuition is tested using various measures of political instability on a panel of 125 countries between 1980 and 1994. Copyright Kluwer Academic Publishers 2002

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    File URL: http://hdl.handle.net/10.1023/A:1013916013825
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    Article provided by Springer in its journal Open Economies Review.

    Volume (Year): 13 (2002)
    Issue (Month): 2 (April)
    Pages: 111-132

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    Handle: RePEc:kap:openec:v:13:y:2002:i:2:p:111-132
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    1. Susan M. Collins & Francesco Giavazzi, 1993. "Attitudes toward Inflation and the Viability of Fixed Exchange Rates: Evidence from the EMS," NBER Chapters, in: A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, pages 547-586 National Bureau of Economic Research, Inc.
    2. Susanne Lohmann, 1998. "Rationalizing the Political Business Cycle: A Workhorse Model," Economics and Politics, Wiley Blackwell, vol. 10(1), pages 1-17, 03.
    3. Honkapohja, Seppo & Pikkarainen, Pentti, 1992. "Country Characteristics and the Choice of the Exchange Rate Regime: Are Mini-skirts Followed by Maxis?," CEPR Discussion Papers 744, C.E.P.R. Discussion Papers.
    4. Ozkan, F. Gulcin & Sutherland, Alan, 1998. "A currency crisis model with an optimising policymaker," Journal of International Economics, Elsevier, vol. 44(2), pages 339-364, April.
    5. Graciela Laura Kaminsky, 1997. "Leading Indicators of Currency Crises," IMF Working Papers 97/79, International Monetary Fund.
    6. Robert J. Barro & David B. Gordon, 1983. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
    7. Sebastian Edwards & Julio Santaella, 1993. "Devaluation Controversies in the Developing Countries: Lessons from the Bretton Woods Era," NBER Chapters, in: A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, pages 405-460 National Bureau of Economic Research, Inc.
    8. Melvin, Michael, 1985. "The Choice of an Exchange Rate System and Macroeconomic Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(4), pages 467-78, November.
    9. Ernesto H. Stein & Jorge M. Streb, 1995. "Political Stabilization Cycles in High Inflation Economies," IDB Publications (Working Papers) 6857, Inter-American Development Bank.
    10. Klein, Michael W. & Marion, Nancy P., 1997. "Explaining the duration of exchange-rate pegs," Journal of Development Economics, Elsevier, vol. 54(2), pages 387-404, December.
    11. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-Party System as a Repeated Game," The Quarterly Journal of Economics, MIT Press, vol. 102(3), pages 651-78, August.
    12. Milesi-Ferretti, G-M & Razin, A, 1996. "Current-Account Sustainability," Princeton Studies in International Economics 81, International Economics Section, Departement of Economics Princeton University,.
    13. L. J. Ruland & J.-M. Viaene, 1993. "The Political Choice Of The Exchange Rate Regime," Economics and Politics, Wiley Blackwell, vol. 5(3), pages 271-284, November.
    14. Torben Andersen, 1998. "Shocks and the Viability of a Fixed Exchange Rate Commitment," Open Economies Review, Springer, vol. 9(2), pages 139-156, April.
    15. Frieden, Jeffry A., 1991. "Invested interests: the politics of national economic policies in a world of global finance," International Organization, Cambridge University Press, vol. 45(04), pages 425-451, September.
    16. Edwards, Sebastian, 1996. "Exchange Rates and the Political Economy of Macroeconomic Discipline," American Economic Review, American Economic Association, vol. 86(2), pages 159-63, May.
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