From Fixers to Floaters: An Empirical Analysis of the Decline in Fixed Exchange Rate Regimes 1973-1995

Lars Einar Legernes and Erling Vårdal ()
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Lars Einar Legernes: University of Bergen

No 1754, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

Abstract: The purpose of this article is to explain the decrease in the fixed exchange rate regimes we have experienced the last decades. Our econometric approach is duration analysis and the explanatory variables used are taken from the literature on optimum currency areas. The sample consists of 51 countries and covers the period 1973-1995. The degree of openness proves to be the most influential variable. Increasing the openness by 1% decreases the hazard for adopting a floating exchange rate by 1.29%, i.e. an elasticity of -1.29. The size of a country and the inflationary differential against foreign countries are also significant. But the corresponding elasticities (0.19 and 0.25) are considerably lower than for openness.

Date: 2000-08-01
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