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Consistency versus credibility: how do countries choose their exchange rate regime?

Author

Listed:
  • Fabrizio Carmignani

    (United Nations Economic Commission for Europe)

  • Emilio Colombo

    (University of Milan - Bicocca)

  • Patrizio Tirelli

    (University of Milan - Bicocca)

Abstract

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'? In this paper we show that a stable socio-political and an efficient political decision- making process are a necessary prerequisite for choosing a peg and sticking to it. Whenever a country is implementing a de facto peg the same factors signal that the peg is more likely to be announced. Finally these factors explain why regime choices are not reversed.

Suggested Citation

  • Fabrizio Carmignani & Emilio Colombo & Patrizio Tirelli, 2005. "Consistency versus credibility: how do countries choose their exchange rate regime?," International Finance 0502001, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpif:0502001
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    More about this item

    Keywords

    Exchange Rate regime Choice Exchange Rate Regime Classification Political Systems;

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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