Persistence, Capital Account Openness and Financial Sector Performance in Exchange Rate Dynamics

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M.T. Chowdhury, P. Bhattacharya, D. Mallick and M.Ulubasoglu, Economic Record, September 2015, v. 91, pp. 279-299.

This paper empirically investigates the persistence in exchange rate regimes as well as the role of capital account openness and financial sector health (measured by financial development and financial sector fragility) in exchange rate regime determination for a panel of 143 countries covering the post-Bretton Woods period. The results demonstrate that while low- and high-income countries exhibit highly persistent exchange rate regimes, middle-income countries display relatively lower persistence. For middle-income countries, capital account openness and the level of financial development play important roles in exchange rate regime choice. The financial sector fragility does not affect the exchange rate regime determination.

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