A Political-Economic Model of the Choice of Exchange Rate Regime

December 1, 2002

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Facing electoral uncertainty, a government chooses its exchange regime in a trade-off among three incentives: (i) tying the hands of its opponent should it lose the election; (ii) facilitating its own future policy implementation should it win the election; and (iii) increasing its chance of reelection.

Subject: Conventional peg, Exchange rate arrangements, Exchange rate flexibility, Expenditure, Foreign exchange, Inflation, Prices

Keywords: budget constraint, choice of a government, Conventional peg, exchange rate, Exchange rate arrangements, Exchange rate flexibility, exchange rate regimes, exchange regime, incumbent government, incumbent's regime policy, Inflation, political economy, regime choice, WP

Pages:
19
Volume:
2002
DOI:
https://doi.org/10.5089/9781451874907.001
Issue:
212
Series:
Working Paper No. 2002/212
Stock No:
WPIEA2122002
ISBN:
9781451874907
ISSN:
1018-5941

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