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Exchange Rate Choices of Microstates

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  • Patrick A. Imam

Abstract

In this paper we first explain why most microstates (countries with less than 2 million inhabitants) have gained independence only in the last 30 years. Despite the higher costs and risks microstates face, their ability to better accommodate local preferences combined with a more integrated world economy probably explains why the benefits of independence have risen. We explain why microstates at independence have chosen either dollarization, currency board arrangements, or fixed exchange rates rather than more flexible forms of exchange rate systems. We then, using the Geweke-Hajvassiliou-Keane multivariate normal simulator, model empirically the determinants of each of the different fixed exchange rate regimes in microstates and analyze the policy implications.

Suggested Citation

  • Patrick A. Imam, 2010. "Exchange Rate Choices of Microstates," IMF Working Papers 2010/012, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2010/012
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    Cited by:

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    2. Francis Breedon & Thórarinn Pétursson & Andrew Rose, 2012. "Exchange Rate Policy in Small Rich Economies," Open Economies Review, Springer, vol. 23(3), pages 421-445, July.
    3. Dorota Zuchowska, 2015. "Accession To The Eurozone As Lithuania’S Exit Strategy From The Currency Board System," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 10(3), pages 27-43, September.
    4. Francis Breedon & Thórarinn Pétursson & Andrew Rose, 2012. "Exchange Rate Policy in Small Rich Economies," Open Economies Review, Springer, vol. 23(3), pages 421-445, July.
    5. Dorota Zuchowska, 2015. "Accession to the Eurozone as Lithuania’s exit strategy from the currency board system," Working Papers 10/2015, Institute of Economic Research, revised Feb 2015.
    6. Naoyuki Yoshino & Matthias Helble & Ahmad Danu Prasetyo, 2017. "Exchange rate policy in the pacific: an evaluation of currency basket regimes," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 31(1), pages 3-20, May.
    7. Andersson, Fredrik N. G. & Jonung, Lars, 2018. "Lessons for Iceland from the Monetary Policy of Sweden," Working Papers 2018:16, Lund University, Department of Economics.
    8. Carmen SANDU (TODERASCU), 2014. "Changes In Exchange Rate Regimes," SEA - Practical Application of Science, Romanian Foundation for Business Intelligence, Editorial Department, issue 4, pages 349-354, July.

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