On the Endogeneity of Exchange Rate Regimes Articles uri icon

authors

  • LEVY YEYATI, EDUARDO
  • STURZENEGGER, FEDERICO
  • REGGIO OJEDA, ILIANA GABRIELA

publication date

  • July 2010

start page

  • 659

end page

  • 677

issue

  • 5

volume

  • 54

international standard serial number (ISSN)

  • 0014-2921

electronic international standard serial number (EISSN)

  • 1873-572X

abstract

  • The literature has identified three main approaches to account for the way exchange rate regimes are chosen: (i) the optimal currency area theory; (ii) the financial view, which highlights the consequences of
    international financial integration; and (iii) the political view, which
    stresses the use of exchange rate anchors as credibility enhancers in
    politically challenged economies. Using de facto and de jure regime
    classifications, we test the empirical relevance of these approaches
    separately and jointly. We find overall empirical support for all of
    them, although the incidence of financial and political aspects varies
    substantially between industrial and non-industrial economies.
    Furthermore, we find that the link between de facto regimes and their
    underlying fundamentals has been surprisingly stable over the years,
    suggesting that the global trends often highlighted in the literature
    can be traced back to the evolution of their natural determinants, and
    that actual policies have been less influenced by the frequent twist and
    turns in the exchange rate regime debate.