changes, while the underlying regime remains the same. For example, these studies would
capture an exit when the central parity of a target zone arrangement is devalued to a new
level. One parameter of the regime changes, but the regime itself has not changed: it is
still a target zone! The classification proposed by Reinhart and Rogoff (2004) and used
by both Asici and Wyplosz (2003) and Detragiache, Mody and Okada (2005) deals with
this problem explicitly. Reinhart and Rogoff (2004) focus on a five-year window to identify
exchange rate regimes on the basis of market-determined nominal exchange rates. Taking
such a perspective allows for a better definition of regime changes as opposed to changes
in some regime parameter.
The sample of countries varies across studies, including either OECD countries, or Latin
American countries, or a selection of developed, emerging market and other economies, or
all countries. Most of the literature, e.g. Detragiache, Mody and Okada (2005), makes use
of logit or probit regressions, whereby the dependent variable takes a unit value whenever
there is an exit. Masson and Ruge-Murcia (2003) estimate time-varying transition proba-
bilities, which are specified as nonlinear functions of explanatory variables. There are few
papers that rely on duration models. Tudela (2004) studies the determinants of currency
crises. Meissner (2002) uses duration analysis to explain the decision of countries to join
the classical gold standard. Sosvilla-Rivero, Maroto-Illera and Perez-Bermejo (2002) focus
on the determinants of realignments and exits within the ERM. Blomberg, Frieden and
Stein (2004) and Setzer (2004) make use of a duration approach. However, Setzer (2004)
focuses on a classification of regimes that remains inadequate and that is only available
on a yearly basis while some regimes last less than one year. Blomberg, Frieden and Stein
(2004) focus only on Latin American and Caribbean countries and rely on officially re-
ported exchange rates in their definition of exchange rate regimes while many countries
have introduced dual exchange rates and/or parallel markets.
Independent variables are usually taken from two strands of literature: the prediction of
currency crises, and optimum currency area criteria. These variables can be classified under
three main headings: macroeconomic variables, such as the real exchange rate, openness,
trade concentration, fiscal policy, monetary policy, inflation, growth; financial variables,