IDEAS home Printed from https://ideas.repec.org/a/bla/etrans/v13y2005i4p679-703.html
   My bibliography  Save this article

The choice of exchange rate regime: An empirical analysis for transition economies

Author

Listed:
  • Jürgen von Hagen
  • Jizhong Zhou

Abstract

We analyze the choice of exchange rate regimes of the 25 transition economies in Europe and the CIS after 1990. The empirical results show that the traditional Optimum Currency Area considerations provide relevant guidance for the regime choices in these countries. Moreover, regime choices are influenced by inflation rates, cumulative inflation differentials, and international reserves sufficiency. That is, macroeconomic stabilization and the ability to commit to exchange rate pegs also play important roles. Large government deficits have ambiguous effects; they increase the likelihood of moving from flexible to intermediate regimes as well as that of moving from fixed to intermediate ones.

Suggested Citation

  • Jürgen von Hagen & Jizhong Zhou, 2005. "The choice of exchange rate regime: An empirical analysis for transition economies," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 13(4), pages 679-703, October.
    • Handle: RePEc:bla:etrans:v:13:y:2005:i:4:p:679-703
    DOI: 10.1111/j.0967-0750.2005.00237.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.0967-0750.2005.00237.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.0967-0750.2005.00237.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Vaubel, Roland, 1978. "Real exchange-rate changes in the European community : A new approach to the determination of optimum currency areas," Journal of International Economics, Elsevier, vol. 8(2), pages 319-339, May.
    2. von Hagen, Jurgen & Zhou, Jizhong, 2005. "De facto and official exchange rate regimes in transition economies," Economic Systems, Elsevier, vol. 29(2), pages 256-275, June.
    3. Boyer, Russell S, 1978. "Optimal Foreign Exchange Market Intervention," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1045-1055, December.
    4. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
    5. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(2), pages 379-408.
    6. Helge Berger & Jan-Egbert Sturm & Jakob de Haan & Jakob de Haan, 2000. "An Empirical Investigation into Exchange Rate Regime Choice and Exchange Rate Volatility," CESifo Working Paper Series 263, CESifo.
    7. Sebastian Edwards, 1996. "The Determinants of the Choice between Fixed and Flexible Exchange-Rate Regimes," NBER Working Papers 5756, National Bureau of Economic Research, Inc.
    8. Bruno, Michael, 1993. "Crisis, Stabilization, and Economic Reform: Therapy by Consensus," OUP Catalogue, Oxford University Press, number 9780198286639.
    9. Henderson, Dale W, 1979. "Financial Policies in Open Economies," American Economic Review, American Economic Association, vol. 69(2), pages 232-239, May.
    10. Obstfeld, Maurice, 1996. "Models of currency crises with self-fulfilling features," European Economic Review, Elsevier, vol. 40(3-5), pages 1037-1047, April.
    11. Melitz, Jacques, 1988. "Monetary Discipline and Cooperation in the European Monetary System: A Synthesis," CEPR Discussion Papers 219, C.E.P.R. Discussion Papers.
    12. Ricardo Hausmann & Michael Gavin & Carmen Pagés-Serra & Ernesto H. Stein, 1999. "Financial Turmoil and Choice of Exchange Rate Regime," Research Department Publications 4170, Inter-American Development Bank, Research Department.
    13. Dale W. Henderson & Stephen W. Salant, 1976. "Market anticipations, government policy, and the price of gold," International Finance Discussion Papers 81, Board of Governors of the Federal Reserve System (U.S.).
    14. William Poole, 1969. "Optimal choice of monetary policy instruments in a simple stochastic macro model," Special Studies Papers 2, Board of Governors of the Federal Reserve System (U.S.).
    15. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-325, August.
    16. Eichengreen, Barry, 1993. "International Monetary Arrangements for the 21st Century," Center for International and Development Economics Research (CIDER) Working Papers 233202, University of California-Berkeley, Department of Economics.
    17. Mr. Jonathan David Ostry & Ms. Anne Marie Gulde & Mr. Atish R. Ghosh & Holger C. Wolf, 1995. "Does the Nominal Exchange Rate Regime Matter?," IMF Working Papers 1995/121, International Monetary Fund.
    18. Heller, H Robert, 1978. "Determinants of Exchange Rate Practices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 10(3), pages 308-321, August.
    19. Richard Meese & Andrew K. Rose, 1996. "Exchange rate instability: determinants and predictability," Proceedings, Federal Reserve Bank of San Francisco, pages 183-205.
    20. Salant, Stephen W & Henderson, Dale W, 1978. "Market Anticipations of Government Policies and the Price of Gold," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 627-648, August.
    21. Savvides, Andreas, 1990. "Real exchange rate variability and the choice of exchange rate regime by developing countries," Journal of International Money and Finance, Elsevier, vol. 9(4), pages 440-454, December.
    22. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
    23. Ms. Hélène Poirson, 2001. "How Do Countries Choose their Exchange Rate Regime?," IMF Working Papers 2001/046, International Monetary Fund.
    24. Amemiya, Takeshi, 1981. "Qualitative Response Models: A Survey," Journal of Economic Literature, American Economic Association, vol. 19(4), pages 1483-1536, December.
    25. Rizzo, Jean-Marc, 1998. "The economic determinants of the choice of an exchange rate regime: a probit analysis," Economics Letters, Elsevier, vol. 59(3), pages 283-287, June.
    26. Glick,Reuven (ed.), 1998. "Managing Capital Flows and Exchange Rates," Cambridge Books, Cambridge University Press, number 9780521623230, October.
    27. Ricardo Hausmann & Michael Gavin & Carmen Pagés & Ernesto H. Stein, 1999. "Financial Turmoil and the Choice of Exchange Rate Regime," IDB Publications (Working Papers) 4128, Inter-American Development Bank.
    28. Dreyer, Jacob S., 1978. "Determinants of exchange-rate regimes for currencies of developing countries: Some preliminary results," World Development, Elsevier, vol. 6(4), pages 437-445, April.
    29. Fratianni, Michele & von Hagen, Juergen, 1990. "The European Monetary System ten years after," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 32(1), pages 173-241, January.
    30. Holden, Paul & Holden, Merle & Suss, Esther C, 1979. "The Determinants of Exchange Rate Flexibility: An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 61(3), pages 327-333, August.
    31. William Poole, 1970. "Optimal Choice of Monetary Policy Instruments in a Simple Stochastic Macro Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(2), pages 197-216.
    32. Melvin, Michael, 1985. "The Choice of an Exchange Rate System and Macroeconomic Stability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(4), pages 467-478, November.
    33. von Hagen, Jurgen, 1992. "Policy-Delegation and Fixed Exchange Rates," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(4), pages 849-870, November.
    34. McKinnon, Ronald I, 1981. "The Exchange Rate and Macroeconomic Policy: Changing Postwar Perceptions," Journal of Economic Literature, American Economic Association, vol. 19(2), pages 531-557, June.
    35. Maurice Obstfeld & Kenneth Rogoff, 1995. "The Mirage of Fixed Exchange Rates," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 73-96, Fall.
    36. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
    37. Bruno, M., 1991. "High Inflation and the Nominal Anchors of an Open Economy," Princeton Studies in International Economics 183, International Economics Section, Departement of Economics Princeton University,.
    38. Bernhard, William & Leblang, David, 1999. "Democratic Institutions and Exchange-rate Commitments," International Organization, Cambridge University Press, vol. 53(1), pages 71-97, January.
    39. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. von Hagen, Jurgen & Zhou, Jizhong, 2005. "De facto and official exchange rate regimes in transition economies," Economic Systems, Elsevier, vol. 29(2), pages 256-275, June.
    2. Alexis Cruz-Rodriguez, 2013. "Choosing and Assessing Exchange Rate Regimes: a Survey of the Literature," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 28(2), pages 37-61, October.
    3. von Hagen, Jurgen & Zhou, Jizhong, 2004. "The Choice of Exchange Rate Regime in Developing Countries: A Multinational Panel Analysis," CEPR Discussion Papers 4227, C.E.P.R. Discussion Papers.
    4. von Hagen, Jürgen & Zhou, Jizhong, 2004. "The choice of exchange rate regimes in developing countries: A mulitnominal panal analysis," ZEI Working Papers B 32-2004, University of Bonn, ZEI - Center for European Integration Studies.
    5. von Hagen, Jurgen & Zhou, Jizhong, 2007. "The choice of exchange rate regimes in developing countries: A multinomial panel analysis," Journal of International Money and Finance, Elsevier, vol. 26(7), pages 1071-1094, November.
    6. Levy Yeyati, Eduardo & Sturzenegger, Federico & Reggio, Iliana, 2010. "On the endogeneity of exchange rate regimes," European Economic Review, Elsevier, vol. 54(5), pages 659-677, July.
    7. Frank Agbola & Chartri Kunanopparat, 2005. "Determinants of exchange rate practices: some empirical evidence from Thailand," Applied Economics, Taylor & Francis Journals, vol. 37(7), pages 807-816.
    8. Mohamed Sfia, 2011. "The choice of exchange rate regimes in the MENA countries: a probit analysis," International Economics and Economic Policy, Springer, vol. 8(3), pages 275-305, September.
    9. Mr. Aasim M. Husain & Mr. Ashoka Mody & Nienke Oomes & Mr. Robin Brooks & Mr. Kenneth Rogoff, 2003. "Evolution and Performance of Exchange Rate Regimes," IMF Working Papers 2003/243, International Monetary Fund.
    10. Monzur Hossain, 2008. "Currency Regime Choice: A Survey of Empirical Literature," AIUB Bus Econ Working Paper Series AIUB-BUS-ECON-2008-11, American International University-Bangladesh (AIUB), Office of Research and Publications (ORP), revised Apr 2008.
    11. Meissner, Christopher M. & Oomes, Nienke, 2009. "Why do countries peg the way they peg? The determinants of anchor currency choice," Journal of International Money and Finance, Elsevier, vol. 28(3), pages 522-547, April.
    12. Piersanti, Giovanni, 2012. "The Macroeconomic Theory of Exchange Rate Crises," OUP Catalogue, Oxford University Press, number 9780199653126.
    13. Fegheh Majidi , Ali, 2014. "Determinants of the Choice of Exchange Rate Regimes in OIC Countries," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 9(3), pages 85-118, April.
    14. Mr. Paolo Mauro & Miss Grace Juhn, 2002. "Long-Run Determinants of Exchange Rate Regimes: A Simple Sensitivity Analysis," IMF Working Papers 2002/104, International Monetary Fund.
    15. Mehmet Güçlü, 2008. "The Determinants of Exchange Rate Regimes in Emerging Market Economies," Papers of the Annual IUE-SUNY Cortland Conference in Economics, in: Oguz Esen & Ayla Ogus (ed.), Proceedings of the Conference on Emerging Economic Issues in a Globalizing World, pages 177-191, Izmir University of Economics.
    16. Agnieszka Markiewicz, 2006. "How Central and Eastern European Countries Choose Exchange Rate Regimes," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 69-84.
    17. Kato, Isamu & Uctum, Merih, 2008. "Choice of exchange rate regime and currency zones," International Review of Economics & Finance, Elsevier, vol. 17(3), pages 436-456.
    18. Domac, Ilker & Peters, Kyle & Yuzefovich, Yevgeny, 2001. "Does the exchange rate regime affect macroeconomic performance : evidence from transition economics," Policy Research Working Paper Series 2642, The World Bank.
    19. Coudert, Virginie & Dubert, Marc, 2005. "Does exchange rate regime explain differences in economic results for Asian countries?," Journal of Asian Economics, Elsevier, vol. 16(5), pages 874-895, October.
    20. Markiewicz, Agnieszka, 2006. "Choice of exchange rate regime in transition economies: An empirical analysis," Journal of Comparative Economics, Elsevier, vol. 34(3), pages 484-498, September.

    More about this item

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:etrans:v:13:y:2005:i:4:p:679-703. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/ebrdduk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.