The political economy of exchange rate regime determination: Theory and evidence

Alena Kimakova

Economic Systems, 2008, vol. 32, issue 4, 354-371

Abstract: This paper studies exchange rate regime choice from a positive perspective by modeling the interplay of monetary and fiscal policy, credibility and financial market microstructure as factors influencing the decision on de facto regime. The model shows how a small open economy reliant on foreign sources of financing is likely to opt for a stable regime. Furthermore, a stable political environment with a high degree of accountability is conducive to choosing a flexible regime. The findings suggest that flexible rather than fixed exchange rate regimes provide more fiscal discipline.

Keywords: Exchange; rate; regime; choice; Political; economy; Financial; markets; microstructure (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:32:y:2008:i:4:p:354-371

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