Exploring different views of the exchange rate regime choice
Author(s)
Carmignani, Fabrizio
Colombo, Emilio
Tirelli, Patrizio
Year published
2008
Metadata
Show full item recordAbstract
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''? We show that a stable socio-political environment and an efficient political decision-making process are a necessary prerequisite for choosing a peg and sticking to it, challenging the view that sees the exchange rate as a commitment device. Policymakers seem rather concerned with regime sustainability in the face of adverse economic and socio-political fundamentals.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''? We show that a stable socio-political environment and an efficient political decision-making process are a necessary prerequisite for choosing a peg and sticking to it, challenging the view that sees the exchange rate as a commitment device. Policymakers seem rather concerned with regime sustainability in the face of adverse economic and socio-political fundamentals.
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Journal Title
Journal of International Money and Finance
Volume
27
Issue
7
Subject
Macroeconomics (incl. Monetary and Fiscal Theory)
Applied Economics
Econometrics
Banking, Finance and Investment