Monetary regimes: The interrelated choice of monetary policy and the exchange rate

Proponents of the inexorable impact of globalization argue that international financial integration has resulted in an environment in which countries can no longer assert control over their ties to the international financial system. While international financial integration may force countries to trade off fixed exchange rates and domestic control over monetary policy, I argue that international capital mobility has not obviated the role of domestic politics. Governments face international and institutional constraints on their choice of monetary regime, however, within these constraints, the government's choice of monetary policy and exchange rate reflects the policy preferences of powerful sectoral and class actors in the domestic economy. In this project, I develop a theory of domestic preference formation in which preferences are shaped by sectoral and class characteristics. I demonstrate empirically that politically important domestic actors influence the government's choice of monetary regime first through a quantitative analysis of monetary regime choice in OECD countries from 1960 to 1998, and then through more detailed case studies of monetary regime choice in Ireland and the United Kingdom.