EXPLAINING THE DURATION OF EXCHANGE-RATE PEGS

This paper is an empirical investigation of the duration of exchange-r ate pegs in 16 Latin American countries and Jamaica. We identify facto rs that influence peg duration using legit analysis. The real exchange rate and the level of international liquidity are significant determi nants of the monthly likelihood of devaluation. Structural variables, such as the openness of an economy and its geographical trade concentr ation, and political variables, such as changes in the executive, also significantly affect the likelihood of a devaluation. There is some e vidence that the likelihood of a devaluation first rises and subsequen tly declines during the first year of a peg. (C) 1997 Elsevier Science B.V.