اقتصاد سیاسی تعیین رژیم نرخ ارز : تئوری و شواهد

This paper studies exchange rate regime choice from a positive perspective by modeling the interplay of monetary and fiscal policy, credibility and financial market microstructure as factors influencing the decision on de facto regime. The model shows how a small open economy reliant on foreign sources of financing is likely to opt for a stable regime. Furthermore, a stable political environment with a high degree of accountability is conducive to choosing a flexible regime. The findings suggest that flexible rather than fixed exchange rate regimes provide more fiscal discipline.

What determines the type of exchange rate regime a country chooses? Economic literature has generally addressed this question from a normative point of view. Normative theories attempt to answer the question: What is the optimal exchange rate regime for a country under specific conditions or what regime should a country adopt? The question of what does determine actual regime choice remains largely unanswered despite a massive body of literature on exchange rate regimes and currency crises. This paper aims to address this gap by adopting a positive perspective on regime choice. The analysis builds a theoretical framework for explaining exchange rate regime choices through the interaction of monetary and fiscal policies, credibility issues, political uncertainty and financial markets microstructure. Bordo (2003) provides a historical overview of the literature on exchange rate regime choice. Among the most prominent normative theories of regime choice is the theory of Optimal Currency Areas (OCA) originally developed by Mundell (1961) and McKinnon (1963). The OCA stream of research determines the optimality of a monetary union based on a set of criteria such as trade links, labor mobility, enhancement of monetary policy credibility, fiscal transfers, and the synchronization of shocks across member states. Optimal regime choice has also been linked to the source of the economic shocks, real or nominal, and the degree of capital mobility. Following the works of Mundell (1963) and Fleming (1962), the main recommendations on regime choice included adopting a floating regime if real shocks prevail, while a fixed regime should be preferable under nominal shocks. At the same time, countries could hope to achieve only two out of three possible regime characteristics comprising monetary independence, an exchange rate peg and free capital mobility. Later Frankel and Rose (1998) pointed towards the endogeneity of OCAs, or the fact that countries may become optimal candidates for a monetary union ex-post, after the implementation of a common monetary regime, even if they do not qualify ex-ante. The reason is that the currency union may enhance trade and the correlation of shocks in member states.

The paper provides a theoretical framework for de facto exchange rate regime determination in a small open economy from a positive perspective. The analysis fills the gap between mostly normative theories of exchange arrangements, typically focused on the binary choice between fix and float, and the documented de facto systems that only rarely fall into the two extreme categories of a hard peg or a truly free float. The model integrates elements of output stimulus, credibility, political uncertainty, currency structure of debt and financial market development as factors affecting regime choice. The model shows how a small open economy reliant on foreign sources of financing is likely to opt for a stable regime. Furthermore, a stable political environment with a high degree of accountability is conducive to choosing a flexible regime. The findings suggest that flexible rather than fixed exchange rate regimes provide more fiscal discipline by limiting the incentives for excessive borrowing. The implications of the model are consistent with recent empirical studies on determinants of de facto regime. Importantly, the empirical literature on regime choice has highlighted that these factors, rather than the traditional OCA criteria, drive regime choice. The challenge for future research lies in providing an integrated theory of de facto and de jure regime choice. In order to account for the frequent divergence between the two choices, the degree of financial openness would need to be modeled as an endogenous variable in addition to the political and financial market factors considered in this paper.