A Political-Economic Model of the Choice of Exchange Rate Regime

Facing electoral uncertainty, a government chooses its exchange regime in a trade-off among three incentives: (i) tying the hands of its opponent should it lose the election; (ii) facilitating its own future policy implementation should it win the election; and (iii) increasing its chance of reelection.Exchange rate regimes;exchange rate regime, exchange rate, flexible exchange rate, flexible exchange rate regime, fixed exchange rate regime, fixed exchange rate, political economy, floating exchange rate regime, floating exchange rate, flexible open economy, current exchange rate, exchange rate movement, nominal interest rate