Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/263450 
Year of Publication: 
2022
Series/Report no.: 
IZA Discussion Papers No. 15234
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
In this paper, we investigate how economic, political and institutional factors affect the choice of exchange rate regimes, using data on eight MENA (Middle East and North Africa) countries over the 1984-2016 period. Specifically, we run random-effects ordered probit regressions of the likelihood of exchange rate regimes on potential determinants of exchange rate regimes. Three important findings emerge from the analysis. i) Political and institutional factors play an important role in determining the exchange rate regime in MENA countries: a democratic political regime and a low level of corruption increases the probability to opt for a fixed regime. While, strong governments, political stability such as less internal conflicts and more government stability, more law and order enforcement and left-wing Government decreases the probability to opt for a fixed regime. ii) Bureaucracy, independent central banks, elections, terms of trade as well as the monetary independence have no effect on the choice of exchange rate regimes. iii) Financial development is not a robust determinant of the choice of exchange rate regimes. Our results still hold when considering alternative specifications and have important implications for policy makers in MENA countries.
Subjects: 
exchange rate regimes
country risk
political and institutional factors
panel data
ordered probit regression
MENA
JEL: 
C23
F33
F55
H80
Document Type: 
Working Paper

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