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Currency Regime Choice: A Survey of Empirical Literature

  • Monzur Hossain

    ()

    (American Internationla University-Bangladesh(AIUB))

This paper reviews the empirical literature on the choice of exchange rate regime. Prominent issues include: (i) the choice based on fundamentals, shocks, financial structure, and political ideology; (ii) the “bipolar view” or “hollowing out hypothesis” and its validity; (iii) regime choice in emerging economies, and (iv) the discrepancy between declared and actual regime, and its consequence on the analysis of currency regime choice. Although much has been learned in each approach, this survey highlights the areas of research in which our understanding of exchange rate regime transition is still incomplete. Observed data rejects the validity of the bipolar view. Moreover, it is seen that a substantial amount of countries diverge from their de jure regime without declaration, which needs to be taken into account for drawing a valid conclusion on the choice of a regime. From the survey it may be concluded that no empirical regularities regarding the choice of a currency regime have emerged yet.

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Paper provided by American International University-Bangladesh, Office of Research and Publications (ORP) in its series AIUB Bus Econ Working Paper Series with number AIUB-BUS-ECON-2008-11.

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Length: 22
Date of creation: Apr 2008
Date of revision: Apr 2008
Handle: RePEc:aiu:abewps:45
Contact details of provider: Web page: http://orp.aiub.edu/

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  1. Guillermo Calvo & Frederic S. Mishkin, 2003. "The Mirage of Exchange Rate Regimes for Emerging Market Countries," NBER Working Papers 9808, National Bureau of Economic Research, Inc.
  2. Masson, Paul R., 2001. "Exchange rate regime transitions," Journal of Development Economics, Elsevier, vol. 64(2), pages 571-586, April.
  3. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange rates and financial fragility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 329-368.
  4. MASSON, Paul & RUGE-MURCIA, Francisco J., 2003. "Explaining the Transition Between Exchange Rate Regimes," Cahiers de recherche 2003-21, Universite de Montreal, Departement de sciences economiques.
  5. 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.
  6. Abiad, Abdul & Oomes, Nienke & Ueda, Kenichi, 2008. "The quality effect: Does financial liberalization improve the allocation of capital?," Journal of Development Economics, Elsevier, vol. 87(2), pages 270-282, October.
  7. Baxter, Marianne & Stockman, Alan C., 1989. "Business cycles and the exchange-rate regime : Some international evidence," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 377-400, May.
  8. Alberto Alesina & Alexander Wagner, 2003. "Choosing (and reneging on) exchange rate regimes," NBER Working Papers 9809, National Bureau of Economic Research, Inc.
  9. Leonardo Hernández & Peter Montiel, 2002. "Post-crisis exchange rate policy in five Asian countries: filling in the 'hollow middle'?," Proceedings, Federal Reserve Bank of San Francisco, issue Sep.
  10. Maurice Obstfeld & Kenneth Rogoff, 1995. "The mirage of fixed exchange rates," Working Papers in Applied Economic Theory 95-08, Federal Reserve Bank of San Francisco.
  11. Roubini, Nouriel & Sachs, Jeffrey D., 1989. "Political and economic determinants of budget deficits in the industrial democracies," European Economic Review, Elsevier, vol. 33(5), pages 903-933, May.
  12. William Poole, 1970. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Staff Studies 57, Board of Governors of the Federal Reserve System (U.S.).
  13. Savvides, Andreas, 1990. "Real exchange rate variability and the choice of exchange rate regime by developing countries," Journal of International Money and Finance, Elsevier, vol. 9(4), pages 440-454, December.
  14. von Hagen, Jürgen & Zhou, Jizhong, 2002. "The Choice of Exchange Rate Regimes: An Empirical Analysis for Transition Economies," CEPR Discussion Papers 3289, C.E.P.R. Discussion Papers.
  15. Hans Genberg & Alexander K. Swoboda, 2005. "Exchange Rate Regimes: Does What Countries Say Matter?," IMF Staff Papers, Palgrave Macmillan, vol. 52(si), pages 8.
  16. Lawrence H. Summers, 2000. "International Financial Crises: Causes, Prevention, and Cures," American Economic Review, American Economic Association, vol. 90(2), pages 1-16, May.
  17. Dreyer, Jacob S., 1978. "Determinants of exchange-rate regimes for currencies of developing countries: Some preliminary results," World Development, Elsevier, vol. 6(4), pages 437-445, April.
  18. Salant, Stephen W & Henderson, Dale W, 1978. "Market Anticipations of Government Policies and the Price of Gold," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 627-48, August.
  19. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 1-48, February.
  20. Sebastian Edwards, 1996. "The Determinants of the Choice between Fixed and Flexible Exchange-Rate Regimes," NBER Working Papers 5756, National Bureau of Economic Research, Inc.
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  23. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
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