ABSTRACT
This chapter discusses some statistical tests. It treats the dependent variable as a dichotomous variable: either a state pegs its exchange rate for most of a given year or it does not. The tests estimate the influence of political and economic conditions on official Exchange-Rate Regime (ERR) policies. The tests on official ERR policy demonstrate support for the financial intermediation hypothesis and no support for the capital mobility hypothesis. The chapter describes the data used in the first set of tests on official ERR policies. It discusses the hazard models used in the tests. The chapter also discusses how the indicators for the key variables are developed and the results of the tests on official ERR policies. The International Monetary Fund (IMF) developed the most standard method of classification, which classifies states according to their official ERR policy. The main criticism of this IMF classification system is that actual exchange-rate behavior may not conform to official claims.
