The political economy of exchange rate regimes in developed and developing countries

Aziz N. Berdiev, Yoonbai Kim, Chun Ping Chang

Research output: Contribution to journalArticlepeer-review

47 Scopus citations

Abstract

This paper examines the influence of government ideology, political institutions and globalization on the choice of exchange rate regime via panel multinomial logit approach using annual data over the period of 1974-2004 in a panel of 180 countries: 26 developed and 154 developing.We provide evidence that government ideology, political institutions and globalization are important determinants of the choice of exchange rate regime. In particular, we find that left-wing governments, democratic institutions, central bank independence and financial development increase the likelihood of choosing a flexible regime, whereas more globalized countries have a higher probability of implementing a fixed regime. More importantly, we find that political economy factors have different effects on the choice of exchange rate regime in developed and developing countries. All our results are robust to panel ordered probit model.

Original languageEnglish
Pages (from-to)38-53
Number of pages16
JournalEuropean Journal of Political Economy
Volume28
Issue number1
DOIs
StatePublished - Mar 2012

Bibliographical note

Funding Information:
We thank the editor and two anonymous referees for their helpful comments and suggestions. An earlier version of this paper was completed while Chun-Ping Chang was a visiting scholar at the University of Kentucky. Chun-Ping Chang is grateful to the National Science Council of Taiwan for financial support through grant NSC 99-2410-H-158-001 . All remaining errors are our own.

Keywords

  • Exchange rate regimes
  • Panel multinomial logit model
  • Political economy

ASJC Scopus subject areas

  • Economics and Econometrics
  • Political Science and International Relations

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