Explaining the duration of exchange-rate pegs

This paper is an empirical investigation of the duration of exchange-rate pegs in 16 Latin American countries and Jamaica. We identify factors that influence peg duration using logit analysis. The real exchange rate and the level of international liquidity are significant determinants of the monthly likelihood of devaluation. Structural variables, such as the openness of an economy and its geographical trade concentration, and political variables, such as changes in the executive, also significantly affect the likelihood of a devaluation. There is some evidence that the likelihood of a devaluation first rises and subsequently declines during the first year of a peg.