Economic Development, Capital Controls And Optimal Exchange Rate Regime Choice

Desirable exchange rate regimes can balance economy from inside and outside the country to promote the stable development of the world economy and international financial markets. With the accelerated process of global economic integration, the economic crisis is easier to transfer in the world, the exchange rate regime is become the issue which academics and policy makers attach great importance to. Today, the theoretical study on the choice of exchange rate regime from different angles are often not the same. In the end are what factors influenced the governments decision on the exchange rate regime choice? Answer to this question helps to understand the history of the evolution of exchange rate regime choice and theoretical basis, and then to analyze the evolution path of the exchange rate regime to provide policy recommendations. The current research perspective and conclusions of exchange rate regime choice theory are different, empirical research is needed to support theoretical research.Through in depth analysis of the exchange rate regime selection criteria, analyze the n countries optimal choose and determinants. Using the random effects logit regression (panel multinomial logistic model) analyzed exchange rate regime choice from1980to2008for developed countries, developing countries and emerging market economies. This paper use12kinds of explanatory variables to represent exchange rate determinants, covering the current two kinds of mainstream theory:OCA basic elements, the level of domestic macroeconomic situation. Also include the impact of capital controls and other government policies. Furthermore, the innovative introduction of unemployment, which is unique in the empirical study of exchange rate regime choice.The paper has five main parts. The first part analyzes the research background and significance from the perspective of the context of the historical development of the exchange rate system. The second part describes IMF classification standards of exchange rate regime and the definition of different exchange rate regime. Mainly through the introduction and comparison between the de jure rate regime classification and the de facto exchange rate regime classification, and the advantage by using the de facto exchange rate regime classification and the exchange rate regime is divided into three broad categories. The third part introduces the theory of exchange rate regime choice, the fixed and floating exchange rate, theoretical and empirical research related to optimal currency area, provides theoretical basis to the following empirical part of this paper. The fourth part of this paper described the data and analyzed the panel, and the establishment of multinomial logistic model, regression results and explained the results. The fifth part is concluded and the Enlightenment based on previous analysis.The empirical results found that the current exchange rate regime choice should be adjusted even if in the face of the same kind of change macroeconomic factors when a country is in a different stage of development.For developing countries, the unemployment rate in the choice between fixed and floating exchange rate regime are not significant; the higher trade openness, the more inclined to choose an intermediate exchange rate regime; the larger economies of scale, select the intermediate exchange rate regime and floating exchange rate system; with the central government budget balance increases, intermediate regimes are more likely to choose; with trade surpluses and increase the deficit, choose a fixed exchange rate regime the possibility of large; capital controls the extent, as the financial openness increases, the greater the likelihood of selecting a fixed exchange rate regime; with the improvement of terms of trade growth, the greater the likelihood of selecting a fixed exchange rate regime.Emerging market countries, the unemployment rate is higher, opt for a fixed exchange rate system; with the increase in economic growth, the greater the likelihood of selecting a floating exchange rate system; the higher population growth rate, compared with a floating exchange rate is more likely to choose fixed exchange rate regime; with per capita GDP growth rate, a country more willing to choose a fixed exchange rate system; the increase of the central government budget balance, more likely to choose a fixed exchange rate regime; with trade surpluses and increase the deficit, choose a fixed exchange rate regime the possibility of large; respect the degree of capital controls, along with an increase in the degree of financial openness, the greater the likelihood of selecting intermediate and floating exchange rate regime; with the improvement of terms of trade growth, tend to choose an intermediate exchange rate regime.For developed countries, the unemployment rate is higher, more likely to choose an intermediate exchange rate regime and the floating exchange rate system; the higher trade openness, the greater the likelihood of selecting a fixed exchange rate system; the larger economies of scale, which is more choice in the intermediate exchange rate regime and floating for the greater the likelihood of a flexible exchange rate regime; when the growth rate as the economy improved, the relative stability of a fixed exchange rate system is the best choice; with the increase in population growth, relative to the fixed exchange rate regime, the developed countries will choose intermediate regimes or a floating exchange rate regime; when per capita GDP growth rate as intermediate exchange rate regime and the floating exchange rate system is the optimal choice for developed countries; when the CPI growth rate is more likely to choose an intermediate exchange rate regime; with the increase in the central government budget balance developed countries are more likely to choose the intermediate exchange rate regime or a floating exchange rate system; developed countries are more likely to trade surpluses and deficits increase the total amount of time, choose a fixed exchange rate regime; aspects of the degree of capital controls, along with an increase in the degree of financial openness, choice more likely in the intermediate exchange rate regime and a fixed exchange rate regime; with the improvement of trade growth, tend to choose an intermediate exchange rate regime.The innovation of this paper is:first, adding a selection result (intermediate exchange rate regime) is not limited to fixed and floating exchange rate system. Second, this paper introduces the unemployment rate factor for the impact of exchange rate regime. Traditional research is generally limited to the impact on the unemployment rate due to exchange rate regimes, but the theoretical literature and empirical studies are very rare about how the unemployment rate will affect the choice of exchange rate regime. Third, existing research results use theoretical research more, lack of empirical research, this paper through a number of explanatory variables to synthesize and build models and regression analysis makes the results more intuitive and have explanatory power.The lack of this paper is that:first, by the limitations and the difficulty of collecting data, this paper analyzes the results did not include the situation in recent years. Second, the determination of exchange rate regime are dynamic over time, follow-up studies need to continue to explore how to use logistic model to analyze the impact of various factors on the dynamic changes in choice of exchange rate regime.