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The determinants of Latin American exchange rate regimes

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Abstract:

The experience of the last thirty years suggests that a wide range of factors affects policymakers' choice of exchange rate regime. The initial explanation was that changes in the international sphere dominated domestic policies and strongly influenced how governments decided among the trade-offs. More recently, domestic political factors' influence on the choice of exchange rate regimes have been emphasized, providing detailed and rich insights into the dynamics of the choice. Neither approach has been entirely successful. Both internal and external factors must be taken into account. This article builds on previous empirical work and takes into account domestic and international influences on the choice of exchange rate regimes in Latin America between 1964 and 1996. In addition, we highlight a variety of ‘interactions', choices of economic policy that are affected by both national and international pressures and that, in turn, influence the choice of exchange rate regime. The empirical model uses multinomial ordered logit analysis to determine the factors in exchange rate determination and to compare the explanatory of the models with and without the interaction variables.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840500193773

Affiliations: Department of Economics, Buc 308, University of Utah, Salt Lake City, Utah 84112, USA

Publication date: July 20, 2005

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