Determinants of the Choice of Exchange Rate Regimes in Six Central American Countries: An Empirical Analysis

March 1, 2003

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Michael G. Papaioannou Determinants of the Choice of Exchange Rate Regimes in Six Central American Countries: An Empirical Analysis, (USA: International Monetary Fund, 2003) accessed December 25, 2024

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

This paper examines whether decisions about the appropriate exchange rate regime in six Central American countries were based on longer-run economic fundamentals or on the confluence of historical and political circumstances. To uncover any actual relationship both across countries and across time, we estimate several probit and multinomial logit models of exchange rate regime choice with data spanning the period 1974-2001. We find that theoretical long-run determinants, such as trade openness, export share with the major trading partner, economic size, and per capita income, are adequate, but not robust, predictors of exchange rate regime choice. However, we were not able to establish a statistically significant association between the terms of trade fluctuations or capital account openness and a particular regime in any specification using our sample.

Subject: Conventional peg, Crawling peg, Exchange rate arrangements, Exchange rates, Floating exchange rates, Foreign exchange

Keywords: Central America, Central American Countries, Central American country, Consequence, Conventional peg, Country, Crawling peg, Crawling peg regime, Exchange rate arrangements, Exchange rate regime classification, Exchange Rate Regimes, Exchange rate volatility, Exchange rates, Flexible regime, Floating exchange rates, Floating regime, GDP, Moving average, Nominal exchange rate, Nonpegging regime, Peg regime, Regime, Regime classification, Variety of exchange rate regime classification, WP

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2003/059
Stock No:

WPIEA0592003
ISBN:

9781451847963
ISSN:

1018-5941

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