The Effect of Government Ideology on an Exchange Rate Regime: Some International Evidence

Authors


We would like to thank the Editor, Professor Zhihong Yu and the three anonymous referees for their valuable comments, which have led to a substantial improvement in the original paper. Chun-Ping Chang is grateful to the National Science Council of Taiwan for financial support through grant NSC 100-2410-H-158-003.

Abstract

This paper com,pre,hen,sively inves,ti,gates the effect of gov,ern,ment ide,ol,ogy on the type of exchange rate regime that a coun,try imple,ments via multinomial lo,git and multinomial probit mod,els for 147 coun,tries in the period 1974–2009. Our results clearly indi,cate that a left-wing gov,ern,ment increases the like,li,hood that a coun,try imple,ments a flex,i,ble regime in the clas,si,fi,ca,tions of exchange rate regimes. Nev,er,the,less, evi,dence is weaker when using the de jure IMF course clas,si,fi,ca,tion, which is set up by Il,zetzki et al., (2008). In a deeper inves,ti,ga,tion, we find that left-wing gov,ern,ments are more likely to choose a flex,i,ble regime rel,a,tive to a fixed one in our sam,ple of OECD, non-OECD and non-Eu,roz,one coun,tries, as the impacts from gov,ern,ment ide,ol,ogy on the deter,mi,nant of the choice of exchange rate regime in Eu,roz,one coun,tries dis,ap,pear. More impor,tantly, we pres,ent many expla,na,tions for exchange rate regime choices when mac,ro,eco,nomic con,di,tions, polit,i,cal con,straints and insti,tu,tions impact the choice of exchange rate regime.

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