Echange rate regime choice and macroeconomic performance in emerging markets

Exchange rate regime choice has been a controversial in international economics, Because of its effect in international economic relations. Besides domestic markets are heavily affected by the choice. Globalization has caused an increase in international trade and capital flows. Although exchange rate regime is a topic of interest for all countries, it has been perceived highly important for emerging markets. In these countries, the choice can be helpful to struggle the instabilities. Moreover the regimes can be seen as a good indicator for globalization.In this thesis, exchange rate regime choice and macroeconomic effects are analyzed for emerging market countries. For this aim, First of all availability of ?bipolarity hypothesis? for these countries is inquired. From this inquisition, it has been found that the numbers of countries which prefer floating regimes are increased especially after 1990. In spite of this preference for floating regime, intermediate regimes have not disappeared. Secondly macroeconomic effects of regime choice are analyzed. Regime choice doesn?t have direct effect on growth, inflation and external trade. Besides fixed exchange rates increase the probability of financial crises. Finally, Panel Probit models have been estimated the choice of exchange rate regimes in the period 1973?2005. The results supported the theory of optimum currency areas, except openness. It?s found that inflation and central bank independency do not have any effect on regime choice. Moreover the results show that opaque political systems are more likely to peg, and financial deepness and foreign debt are related floating regimes.