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Determinants of the Choice of Exchange Rate Regimes in Six Central American Countries: An Empirical Analysis

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  • Mr. Michael G. Papaioannou

Abstract

This paper examines whether decisions about the appropriate exchange rate regime in six Central American countries were based on longer-run economic fundamentals or on the confluence of historical and political circumstances. To uncover any actual relationship both across countries and across time, we estimate several probit and multinomial logit models of exchange rate regime choice with data spanning the period 1974-2001. We find that theoretical long-run determinants, such as trade openness, export share with the major trading partner, economic size, and per capita income, are adequate, but not robust, predictors of exchange rate regime choice. However, we were not able to establish a statistically significant association between the terms of trade fluctuations or capital account openness and a particular regime in any specification using our sample.

Suggested Citation

  • Mr. Michael G. Papaioannou, 2003. "Determinants of the Choice of Exchange Rate Regimes in Six Central American Countries: An Empirical Analysis," IMF Working Papers 2003/059, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2003/059
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    References listed on IDEAS

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    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 1-48.
    2. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(2), pages 379-408.
    3. Tornell, Aaron & Velasco, Andres, 2000. "Fixed versus flexible exchange rates: Which provides more fiscal discipline?," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 399-436, April.
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    Cited by:

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    2. Castañeda, Gonzalo & Pietronero, Luciano & Romero-Padilla, Juan & Zaccaria, Andrea, 2022. "The complex dynamic of growth: Fitness and the different patterns of economic activity in the medium and long terms," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 231-246.
    3. Eman Elish, 2019. "The Determinants of Optimal Exchange Rate Regimes in High and Low Oil-Producing Countries," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 15(2), pages 97-120, December.
    4. Jesse Russell, 2012. "Herding and the shifting determinants of exchange rate regime choice," Applied Economics, Taylor & Francis Journals, vol. 44(32), pages 4187-4197, November.
    5. Wieslawa Przybylska-Kapuścinska, 2007. "Monetary Policy of the Baltic States - new EU Members," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 19.
    6. Mohamed Sfia, 2011. "The choice of exchange rate regimes in the MENA countries: a probit analysis," International Economics and Economic Policy, Springer, vol. 8(3), pages 275-305, September.
    7. Ghosh, Amit, 2014. "A comparison of exchange rate regime choice in emerging markets with advanced and low income nations for 1999–2011," International Review of Economics & Finance, Elsevier, vol. 33(C), pages 358-370.
    8. Assande Des Adom, 2012. "Beyond the CFA Franc: an empirical analysis of the choice of an exchange rate regime in the UEMOA," Economic Issues Journal Articles, Economic Issues, vol. 17(2), pages 71-93, September.

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