On the Endogeneity of Exchange Rate Regimes

Eduardo Levy Yeyati (), Federico Sturzenegger and Iliana Reggio ()

Business School Working Papers from Universidad Torcuato Di Tella

Abstract: The literature has identified at least five approaches to the determinants of the choice of exchange rate regimes: i) optimal currency area theory; ii) exchange rate policy and the absortion of real and nominal shocks; iii) exchange rate rules as a policy crutch in credibility-challenged economies; iv) the impossible trinity in light of increasing financial globalization; and v) the balance sheet exposure to exchange rate changes in financially dollarized economies. Using both a de facto and a de jure regime classification, we test the empirical relevance of these approaches simultaneously. We find overall empirical support for all of them, although their relative relevance varies substantially between industrial and non-industrial economies. We show that regime choices, as well as deviations between actual and reported policies, can be accurately predicted by a small number of economic and political characteristics of each country. When regimes are correctly characterized, they display no time trend, suggesting that the trends typically highlighted in the exchange rate regime debate can be traced back to the evolution of their natural determinants

Date: Written 2002
View list of references View citations in EconPapers

Downloads: (external link)
http://www.utdt.edu/departamentos/empresarial/cif/pdfs-wp/wpcif-112002.pdf (application/pdf)

Related works:
Working Paper: On the Endogeneity of Exchange Rate Regimes (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Access Statistics for this paper

More papers in Business School Working Papers from Universidad Torcuato Di Tella
Contact information at EDIRC.
Series data maintained by Julieta Serna ().