Consistency versus credibility: how do countries choose their exchange rate regime?

Fabrizio Carmignani (), Emilio Colombo and Patrizio Tirelli

No 85, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: The empirical distinction between de facto and de jure exchange rate regimes raises a number of interesting questions. Which factors may induce a de facto peg? Why do countries enforce a peg but do not announce it? Why do countries \break their promises"? We show that a stable socio-political and an e±cient political decision-making process are a necessary prerequisite for choosing a peg and sticking to it, challenging the view that sees the exchange rate as a commitment device. Policymakers seem rather concerned with regime sustainability in the face of adverse economic and socio political fundamentals.

JEL-codes: D72 F31 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2004-10, Revised 2005-02
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Persistent link: https://EconPapers.repec.org/RePEc:mib:wpaper:85

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