Fear of Floating and Fear of Pegging: An Empirical Analysis of De Facto Exchange Rate Regimes in Developing Countries

30 Pages Posted: 15 Jun 2006

See all articles by Jürgen von Hagen

Jürgen von Hagen

University of Bonn - Institute of Economic Policy; Centre for Economic Policy Research (CEPR)

Jizhong Zhou

University of Bonn - Center for European Integration Studies (ZEI)

Date Written: March 2006

Abstract

This paper uses a panel probit model with simultaneous equations to explain the joint determination of de facto and de jure exchange rate regimes in developing countries since 1980. We also derive an ordered-choice panel probit model to explain the causes of discrepancies between the two regime choices. Both models are estimated using simulation-based maximum likelihood methods. The results of the simultaneous equations model suggest that the two regime choices are dependent of each other and exhibit considerable state dependence. The ordered probit model provides evidence that regime discrepancies reflect an error-correction mechanism, and the discrepancies are persistent over time.

Keywords: De facto exchange rate regimes, developing countries, simultaneous equations model, simulated maximum likelihood

JEL Classification: C35, F33, F41

Suggested Citation

von Hagen, Jürgen and Zhou, Jizhong, Fear of Floating and Fear of Pegging: An Empirical Analysis of De Facto Exchange Rate Regimes in Developing Countries (March 2006). CEPR Discussion Paper No. 5530, Available at SSRN: https://ssrn.com/abstract=909221

Jürgen Von Hagen (Contact Author)

University of Bonn - Institute of Economic Policy ( email )

Adenauerallee 24
D-53113 Bonn
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Jizhong Zhou

University of Bonn - Center for European Integration Studies (ZEI) ( email )

Regina-Pacis-Weg 3
Postfach 2220
D-53012 Bonn
Germany
+49 228 734 928 (Phone)