The political choice and collapse of fixed exchange rates

Carsten Hefeker

No 277, Discussion Papers, Series II from University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy"

Abstract: Evidence suggests there is a strong tendency among states to choose fixed exchange rates. Yet he interpretation of fixed exchange rates as a monetary policy rule remains unconvincing. Adopting an endogenous policy perspective, this paper argues that political-support maximizing governments choose fixed exchange rates to benefit domestic interest groups. Exogenous shocks, however, may change domestic political equilibria, causing the collapse of international arrangements and the switch to flexible exchange rates. Institutional pecularities make monetary unification a special case in this cycle.

Keywords: exchange rate regime; monetary union; political economy (search for similar items in EconPapers)
JEL-codes: D72 F02 F33 (search for similar items in EconPapers)
Date: 1995
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:kondp2:277

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