- The Political Economy of Exchange Rate Regimes In Transition Economies
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- by Frieden, Jeffry; Leblang, David
- We show that political economy factors play an important role in shaping the exchange rate policies of transition economies. We argue, among other things, that tradables producers prefer a floating rate to allow active exchange rate policy to affect their competitiveness, while internationally exposed sectors prefer a fixed rate to provide currency stability. We carry out a quantitative analysis of the de facto exchange rate behavior of 21 countries over the period 1992-2004. We find support for our arguments, along with some counter-intuitive results, for example associating democracy with a pegged currency and trade concentration with a floating currency. Our empirical results serve as the basis for predictions regarding the adoption of the euro in the EU accession countries and other countries in Central and Eastern Europe.
- Publication Type: WCFIA Working Paper
- Published Date: June 2008
- Field of Interest: Political Economy
- Frieden, Jeffry, David Leblang and Neven Valev. "The Political Economy of Exchange Rate Regimes In Transition Economies." Working Paper 2008-0135, Weatherhead Center for International Affairs, Harvard University, June 2008.