@techreport{NBERw4651,
 title = "Explaining the Duration of Exchange-Rate Pegs",
 author = "Michael W. Klein and Nancy P. Marion",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "4651",
 year = "1994",
 month = "February",
 URL = "http://www.nber.org/papers/w4651",
 abstract = {This paper is a theoretical and empirical investigation into the duration of exchange-rate pegs.  The theoretical model considers a policy-maker who must trade off the economic costs of real exchange- rate misalignment against the political cost of realignment.  The optimal time to spend on a peg is derived and factors that influence peg duration are identified.  The predictions of the model are tested using logit analysis with a data set of exchange-rate pegs for sixteen Latin American countries and Jamaica during the 1957-1991 period.  We find that the real exchange rate is a significant determinant of the likelihood of a devaluation.  Structural variables, such as the openness of the economy and its geographical trade concentration, also significantly affect the likelihood of a devaluation.  Finally, political events that change the political cost of realignment, such as regular and irregular executive transfers, are empirically important determinants of the likelihood of a devaluation.},
}