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Currency Regime Choice: A Survey of Empirical Literature

Monzur Hossain ()
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Monzur Hossain: American Internationla University-Bangladesh (AIUB)

AIUB Bus Econ Working Paper Series from American International University-Bangladesh (AIUB), Office of Research and Publications (ORP)

Abstract: This paper reviews the empirical literature on the choice of exchange rate regime. Prominent issues include: (i) the choice based on fundamentals, shocks, financial structure, and political ideology; (ii) the “bipolar view” or “hollowing out hypothesis” and its validity; (iii) regime choice in emerging economies, and (iv) the discrepancy between declared and actual regime, and its consequence on the analysis of currency regime choice. Although much has been learned in each approach, this survey highlights the areas of research in which our understanding of exchange rate regime transition is still incomplete. Observed data rejects the validity of the bipolar view. Moreover, it is seen that a substantial amount of countries diverge from their de jure regime without declaration, which needs to be taken into account for drawing a valid conclusion on the choice of a regime. From the survey it may be concluded that no empirical regularities regarding the choice of a currency regime have emerged yet.

Pages: 22
Date: 2008-04, Revised 2008-04
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