Exchange Rate Choices of Microstates

Exchange Rate Choices of Microstates

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In this paper we first explain why most microstates (countries with less than 2 million inhabitants) have gained independence only in the last 30 years. Despite the higher costs and risks microstates face, their ability to better accommodate local preferences combined with a more integrated world economy probably explains why the benefits of independence have risen. We explain why microstates at independence have chosen either dollarization, currency board arrangements, or fixed exchange rates rather than more flexible forms of exchange rate systems. We then, using the Geweke-Hajvassiliou-Keane multivariate normal simulator, model empirically the determinants of each of the different fixed exchange rate regimes in microstates and analyze the policy implications.... (1966) ofpeg to U.S. dollar between 1976-1980 1980 Cape Verde 427, 000 Independence (1976) Portugese Escudo/(Euro ... It is not D. How Do the Different Hard Pegs Compare? immediately clear (see Table 4) which system a microstate anbsp;...

Title:Exchange Rate Choices of Microstates
Author:Patrick A. Imam
Publisher:International Monetary Fund - 2010-01-01


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