Therefore, it seems that the time spent within a regime is itself a significant determinant
of the probability of an exit.
The issue of duration dependence deserves further investigation. Firstly, the results
obtained from the estimation of the proportional hazard specification can be interpreted
in two ways. On the one hand, we can argue that the time spent within a peg matters. On
the other hand, we could also claim that we have not controlled for every possible time-
varying explanatory factor, so that the pattern of duration dependence persists because of
omitted variables. We believe that this problem should be studied further by introducing
more explanatory variables, and by taking explicit account of unobserved heterogeneity.
Secondly, this paper aggregates all possible types of fixed exchange rate regimes into a
single category. It is doubtful, however, that hard pegs such as dollarization or currency
boards exhibit the same properties as soft target zones or even moving bands of fluctuation.
Therefore, the analysis should be refined by disaggregating fixed exchange rate regimes
into several categories. In turn, this would increase the number of possible exits between
regimes. We could study exits from hard fixing to soft fixing, soft fixing to hard fixing,
hard fixing to floating, and soft fixing to floating. In turn, we could also focus on exits
from floating regimes. There are several possible combinations of exits and these may
exhibit different patterns of duration dependence. Disaggregating across finer categories of
exchange rate regimes would also allow for a discussion of the bipolar hypothesis in terms of
duration dependence. In this paper, the aggregation of all types of fixing strategies within
a single category implies that we can only study one corner solution, the move towards
floating exchange rates.
Finally, we have ignored a potential problem of selection bias. Some of the factors
that affect the duration of an exchange rate regime may also affect the decision to enter
such a regime in the first place. For example, high inflation could possibly lead a country
to adopt a rigidly fixed exchange rate within the scope of a broader disinflation strategy.
The evolution of the rate of inflation during the peg will also affect the duration of this
arrangement. The study of selection bias in the context of duration models is still in its
infancy and we leave this aspect for further investigation.
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