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

Fabrizio Carmignani (), Emilio Colombo () and Patrizio Tirelli ()

International Finance from University Library of Munich, Germany

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'? In this paper we show that a stable socio-political and an efficient political decision- making process are a necessary prerequisite for choosing a peg and sticking to it. Whenever a country is implementing a de facto peg the same factors signal that the peg is more likely to be announced. Finally these factors explain why regime choices are not reversed.

Keywords: Exchange; Rate; regime; Choice; Exchange; Rate; Regime; Classification; Political; Systems (search for similar items in EconPapers)
JEL-codes: F3 F4 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2005-02-04
New Economics Papers: this item is included in nep-ifn and nep-pol
Note: Type of Document - pdf; pages: 39
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