The duration of fixed exchange rate regimes

The duration of fixed exchange rate regimes

Sebastien Walti*

Trinity College Dublin

August 2005

Abstract

This paper studies the survival of fixed exchange rate regimes. The probabil-
ity of an exit from a fixed exchange rate regime depends on the time spent within
this regime. In such a context durations models are appropriate, in particular be-
cause of the possible non-monotonic pattern of duration dependence. Non-parametric
estimates show that the pattern of duration dependence exhibits non-monotonic be-
haviour and that it differs across types of economies. This behaviour persists when
we control for time-varying covariates in a proportional hazard specification. We
conclude that how long a regime has lasted will affect the probability that it will
end, in a non-monotonic fashion.

JEL Classification: F30, F31, F41.

Keywords: Exchange rate regime, currency crisis, regime transition, duration
models, survival analysis.

*Sebastien Walti, Department of Economics, Trinity College Dublin, Dublin 2, Ireland. Email:
waltis@tcd.ie. Phone: +35316081041. Fax: +35316772503. I am grateful to Hans Genberg, Roberto
Rigobon and Charles Wyplosz for insightful comments and suggestions. All remaining errors are mine.

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