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

  • Fabrizio Carmignani

    (United Nations Economic Commission for Europe)

  • Emilio Colombo

    (University of Milan - Bicocca)

  • Patrizio Tirelli

    (University of Milan - Bicocca)

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.

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Paper provided by EconWPA in its series International Finance with number 0502001.

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Length: 39 pages
Date of creation: 04 Feb 2005
Date of revision:
Handle: RePEc:wpa:wuwpif:0502001
Note: Type of Document - pdf; pages: 39
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  13. Rizzo, Jean-Marc, 1998. "The economic determinants of the choice of an exchange rate regime: a probit analysis," Economics Letters, Elsevier, vol. 59(3), pages 283-287, June.
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  26. Bernhard, William & Leblang, David, 1999. "Democratic Institutions and Exchange-rate Commitments," International Organization, Cambridge University Press, vol. 53(01), pages 71-97, December.
  27. Helge Berger & Jan-Egbert Sturm & Jakob de Haan, 2000. "An Empirical Investigation into Exchange Rate Regime Choice and Exchange Rate Volatility," CESifo Working Paper Series 263, CESifo Group Munich.
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