The determinants of the choice of exchange rate regimes in Latin America: a mixed multinomial logit approach

Abstract

The choice of the exchange rate regime is one of the most signifi cant monetary policy decisions that any economic authority has to make nowadays. Indeed, there have been many studies from a theoretical and empirical point of view, but the only common conclusion would be the lack of consensus. In the past this topic has been modeled by binary probit or cross-sectional multinomial logit models, both of which have weaknesses in the assumptions of the choices. In this paper, such issue is faced by means of a panel mixed multinomial logit model, which allows for substitution pattern among the three types of exchange rate regimes: fi xed, intermediate, and fl exible. Three types of choice determinants are explored: those stated by the Optimum Currency Area (OCA) theory, types of shocks and vulnerability to currency crises, using a sample of 21 Latin American countries over the period 1980-2004. © 2011 Asociación Cuadernos de Economía. Published by Elsevier España, S.L. All rights reserved. Determinantes de la elección del régimen cambiario en América Latina: una aproximación a un modelo logit multinomial mixtoResumen La elección del régimen cambiario constituye una de las decisiones de política económica más relevantes a las que se enfrentan las autoridades monetarias de cualquier país. Existe una amplia literatura, tanto teórica como empírica, cuyo principal resultado es la falta de consenso acerca de los determinantes de la elección del régimen cambiario. Tradicionalmente, este problema se había tratado mediante modelos probit binarios o modelos logit multinomiales de corte transversal, presentando ambos debilidades en la estimación. En este artículo, esta cuestión se afronta mediante un modelo logit multinomial con datos de panel que permite la 56 P. Álvarez Ondina et al.Crisis Cambiarias; Logit multinomial mixto correlación de los errores en el tiempo, así como una mayor fl exibilidad en la elección de las alternativas. Se analizan tres tipos de determinantes en la elección de régimen cambiario: aquellos que se derivan de la teoría de las Áreas Monetarias Óptimas, los relativos a los tipos de shocks y los que se refi eren a la propensión a las crisis cambiarias, utilizando una muestra de 21 países de América Latina para el periodo 1980-2004.

Give me a U, give me a V, give me an L!: How effective are countercyclical policies in shaping the output dynamic during recessions

“…This modeling approach is used frequently for analyzing microeconomic choices in decision problems but not as much in the macroeconomic literature. Three macro‐application of this method are the study of countries selecting exchange rate regimes (Dubas et al., 2010; Papaioannou, 2003; Álvarez et al., 2011), the country risk analysis of foreign direct investments (McGowan & Moeller, 2005) and the study of economic growth and structural change in the medium term (Castañeda et al., 2022). Consequently, this paper is the first application of multinomial regressions for studying output dynamics in episodes of recession and their subsequent recovery.…”