The Effect of Government Ideology on an Exchange Rate Regime: Some International Evidence

47 Pages Posted: 25 Apr 2017

Date Written: April 2017

Abstract

This paper comprehensively investigates the effect of government ideology on the type of exchange rate regime that a country implements via multinomial logit and multinomial probit models for 147 countries in the period 1974–2009. Our results clearly indicate that a left‐wing government increases the likelihood that a country implements a flexible regime in the classifications of exchange rate regimes. Nevertheless, evidence is weaker when using the de jure IMF course classification, which is set up by Ilzetzki et al. ([Ilzetzki, E., 2008]). In a deeper investigation, we find that left‐wing governments are more likely to choose a flexible regime relative to a fixed one in our sample of OECD, non‐OECD and non‐Eurozone countries, as the impacts from government ideology on the determinant of the choice of exchange rate regime in Eurozone countries disappear. More importantly, we present many explanations for exchange rate regime choices when macroeconomic conditions, political constraints and institutions impact the choice of exchange rate regime.

Suggested Citation

Chang, Chun‐Ping and Lee, Chien-Chiang, The Effect of Government Ideology on an Exchange Rate Regime: Some International Evidence (April 2017). The World Economy, Vol. 40, Issue 4, pp. 788-834, 2017, Available at SSRN: https://ssrn.com/abstract=2957938 or http://dx.doi.org/10.1111/twec.12018

Chun‐Ping Chang (Contact Author)

Shih Chien University ( email )

200 University Road
Ney-Nan Tsun
Kaohsiung, 845
Taiwan

Chien-Chiang Lee

Nanchang University ( email )

999 Xuefu Avenue
Hong Gu Tan New District
Nanchang, Jiangxi 330031
China
330031 (Fax)

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