Determinants of the Choice of Exchange Rate Regimes in Six Central American Countries: An Empirical Analysis

Michael Papaioannou

No 2003/059, IMF Working Papers from International Monetary Fund

Abstract: This paper examines whether decisions about the appropriate exchange rate regime in six Central American countries were based on longer-run economic fundamentals or on the confluence of historical and political circumstances. To uncover any actual relationship both across countries and across time, we estimate several probit and multinomial logit models of exchange rate regime choice with data spanning the period 1974-2001. We find that theoretical long-run determinants, such as trade openness, export share with the major trading partner, economic size, and per capita income, are adequate, but not robust, predictors of exchange rate regime choice. However, we were not able to establish a statistically significant association between the terms of trade fluctuations or capital account openness and a particular regime in any specification using our sample.

Keywords: WP; regime; country; regime classification; consequence; GDP; Exchange Rate Regimes; Central American Countries; crawling peg regime; nonpegging regime; exchange rate regime classification; peg regime; floating regime; moving average; Central American country; variety of exchange rate regime classification; exchange rate volatility; flexible regime; nominal exchange rate; Exchange rate arrangements; Crawling peg; Conventional peg; Floating exchange rates; Exchange rates; Central America (search for similar items in EconPapers)
Pages: 28
Date: 2003-03-01
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Citations: View citations in EconPapers (9)

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