78 International Organization will often attempt to optimize the timing of the election based on its standing in the polls,economic conditions,and so on-that is,electoral timing is endogenous to the government's political calculations.In these systems politicians do not need to ma- nipulate monetary policy to insure an economic boom at a prespecified election time. Instead,politicians may manipulate the timing of the election to coincide with oppor- tune economic conditions.In these systems politicians in the governing parties will be less opposed to a fixed exchange rate. In other systems electoral timing is exogenous.Politicians stand for election at a predetermined time,regardless of political and economic conditions.In these sys- tems politicians in the governing parties have more incentive to manipulate policy to produce good economic conditions for the election period.A fixed exchange rate not only limits their discretion over policy but also makes domestic economic conditions (and their electoral consequences)vulnerable to external shocks.Consequently,poli- ticians in systems with exogenous timing will prefer a floating exchange. In our empirical analysis we include a dummy variable for countries with exog- enous electoral timing:Israel,Norway,Sweden,Switzerland,and the United States. We expect these countries to be more likely to adopt a floating exchange arrange- ment,even after other factors are taken into account. International and Domestic Influences on Exchange-rate Choice In addition to domestic political institutions,other factors have an important influ- ence on the choice of exchange-rate arrangement.This section identifies four sets of variables that affect this choice:international systemic factors,domestic macroeco- nomic conditions,domestic political factors,and policy inertia. International Systemic Variables According to the optimal exchange-rate literature,a country's structural position in the world economy strongly influences the decision to fix or float.The literature emphasizes three systemic factors:trade dependence,vulnerability to macroeco- nomic shocks,and capital mobility. Trade Dependence The literature on optimal currency areas argues that a country's dependence on exter- nal trade strongly affects the choice of exchange-rate arrangement.Countries that rely heavily on trade are more likely to fix the exchange rate.A fixed exchange rate decreases exchange-rate risk.With a predictable external environment,trading agents78 International Organization will often attempt to optimize the timing of the election based on its standing in the polls, economic conditions, and so on-that is, electoral timing is endogenous to the government's political calculations. In these systems politicians do not need to ma￾nipulate monetary policy to insure an economic boom at a prespecified election time. Instead, politicians may manipulate the timing of the election to coincide with oppor￾tune economic conditions. In these systems politicians in the governing parties will be less opposed to a fixed exchange rate. In other systems electoral timing is exogenous. Politicians stand for election at a predetermined time, regardless of political and economic conditions. In these sys￾tems politicians in the governing parties have more incentive to manipulate policy to produce good economic conditions for the election period. A fixed exchange rate not only limits their discretion over policy but also makes domestic economic conditions (and their electoral consequences) vulnerable to external shocks. Consequently, poli￾ticians in systems with exogenous timing will prefer a floating exchange. In our empirical analysis we include a dummy variable for countries with exog￾enous electoral timing: Israel, Norway, Sweden, Switzerland, and the United States. We expect these countries to be more likely to adopt a floating exchange arrange￾ment, even after other factors are taken into account. International and Domestic Influences on Exchange-rate Choice In addition to domestic political institutions, other factors have an important influ￾ence on the choice of exchange-rate arrangement. This section identifies four sets of variables that affect this choice: international systemic factors, domestic macroeco￾nomic conditions, domestic political factors, and policy inertia. International Systemic Variables According to the optimal exchange-rate literature, a country's structural position in the world economy strongly influences the decision to fix or float. The literature emphasizes three systemic factors: trade dependence, vulnerability to macroeco￾nomic shocks, and capital mobility. Trade Dependence The literature on optimal currency areas argues that a country's dependence on exter￾nal trade strongly affects the choice of exchange-rate arrangement. Countries that rely heavily on trade are more likely to fix the exchange rate. A fixed exchange rate decreases exchange-rate risk. With a predictable external environment, trading agents