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Explaining Shifts in Exchange Rate Regimes

Author

Listed:
  • Graham Bird

    (University of Surrey)

  • Alex Mandilaras

    (University of Surrey)

  • Helen Popper

    (Santa Clara University)

Abstract

Issues surrounding exchange rates continue to fascinate both economists and political scientists. Although a relatively large literature has grown around attempting to explain the choice of exchange rate regime, empirical estimation has failed to find a generally satisfactory explanation of it. Shifts between exchange rate regimes are even less well understood. This paper focuses on such shifts and examines them by estimating both an economics only specification and one that is augmented with political variables. As a robustness check we also estimate a data driven specification using a large and comprehensive set of economic and political variables. In addition, we examine shifts between international macroeconomic archetypes to see whether similar factors are at work. In terms of exchange rate regime shifts, we find that although unobservable country specific factors are significant, there are other systematically important factors including, in particular, economic growth and IMF involvement. Central bank independence, financial openness and the incidence of crises may also exert an influence. In contrast, we find that selected political variables are generally insignificant in affecting shifts, although they may influence the size of shifts, once they happen.

Suggested Citation

  • Graham Bird & Alex Mandilaras & Helen Popper, 2012. "Explaining Shifts in Exchange Rate Regimes," School of Economics Discussion Papers 1312, School of Economics, University of Surrey.
  • Handle: RePEc:sur:surrec:1312
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    File URL: https://repec.som.surrey.ac.uk/2012/DP13-12.pdf
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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