Exploring different views of exchange rate regime choice |
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Authors: | Fabrizio Carmignani Emilio Colombo Patrizio Tirelli |
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Institution: | aUnited Nations Economic Commission for Africa, Central Africa Office, P.O. Box 14935, Yaoundè, Cameroon;bUniversity of Milan – Bicocca, Department of Economics, Piazza Ateneo Nuovo 1, 20126, Milano, Italy |
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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 environment and an efficient 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. |
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Keywords: | Exchange rate regimes de facto classification Credibility Consistency |
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