Political stability and credibility of currency board

Shu Feng, Liang Fu, Chun-Yu Ho and Wai-Yip Alex Ho

Journal of International Money and Finance, 2023, vol. 137, issue C

Abstract: Do currency boards offer protection against self-fulling speculative attacks? This paper examines the credibility of currency boards of Argentina, Bulgaria, Estonia, Hong Kong, Latvia, and Lithuania. We employ a Bayesian Markov regime-switching model to analyze the role of economic fundamentals and self-fulfilling expectations in accounting for the credibility of the currency board. We find that the credibility of our sample currency boards is all subject to self-fulfilling runs. We also find that the political stability of adopting economies relates to the credibility of their currency boards and explains a few self-fulfilling runs of their currency boards.

Keywords: Fixed exchange rate; Regime switching; Political economy (search for similar items in EconPapers)
JEL-codes: E42 E58 E65 F31 F33 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:137:y:2023:i:c:s0261560623001122

DOI: 10.1016/j.jimonfin.2023.102911

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