Exchange rate policy is influenced by numerous political factors, including the preferences of industries, policymakers, political parties as well as institutional arrangements, such as democracy, elections, the electoral system, the number of veto players and central bank independence. However,...

There has been much interest in whether fixed exchange rates can provide a strong source of discipline over domestic monetary and fiscal policies. We argue that previous studies, however, have not paid sufficient attention to the distinction between constraint and incentive effects and that...