How Do Countries Choose Their Exchange Rate Regime?

34 Pages Posted: 29 Jan 2006

See all articles by Hélène Poirson

Hélène Poirson

International Monetary Fund (IMF) - Research Department

Date Written: April 2001

Abstract

This paper investigates the determinants of exchange rate regime choice in 93 countries during 1990-98. Cross-country analysis of variations in international reserves and nominal exchange rates shows that (i) truly fixed pegs and independent floats differ significantly from other regimes and (ii) significant discrepancies exist between de jure and de facto flexibility. Regression results highlight the influence of political factors (political instability and government temptation to inflate), adequacy of reserves, dollarization (currency substitution), exchange rate risk exposure, and some traditional optimal currency area criteria, in particular capital mobility, on exchange rate regime selection.

Keywords: exchange rates, developing countries, dollarization, optimal currency areas

JEL Classification: F33, F41, O10

Suggested Citation

Poirson Ward, Helene, How Do Countries Choose Their Exchange Rate Regime? (April 2001). IMF Working Paper No. 01/46, Available at SSRN: https://ssrn.com/abstract=879438

Helene Poirson Ward (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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