DP7006 | Fear of Floating and Pegging: A Simultaneous Choice Model of De Jure and De Facto Exchange Rate Regimes

Publication Date

10/10/2008

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Abstract

We present an analysis of the determinants of de jure and de facto exchange rate regimes based on a panel probit model with simultaneous equations. The model is estimated using simulation-based maximum likelihood methods. The empirical results suggest a triangular structure of the model such that the choice of de facto regimes depends on the choice of de jure regimes but not vice versa. This gives rise to a novel interpretation of regime discrepancies.