The Political Economy of Fixed Exchange Rates: A Survival Analysis

This paper examines the role that political and institutional factors played in the duration of fixed exchange rate regimes in 47 developing countries within the time period 1975-2000. As an innovation to the literature, we characterize and model the times to exit for a fixed exchange rate regime using a Cox model. The empirical analysis shows that exchange rate policymaking is not a purely theoretical issue, but strongly depends on partisan and institutional incentives such as the date of elections, the political color of the government in power, the number of veto players, and the degree of central bank independence.