Oscar wilde fiscal policy is not wellsuited for stabilizing in. The book investigates how does the choice of each of the possible exchange rate regime influence the behavior of economic participants. The research on exchange rate regimes itself is another common topic in highlevel articles and journals. Exchange rate regimes in africa exchange rate regimes in africa reflect choices made at the time of independence as well as more recent trends in exchange rate regimes of developing countries. The author would like to thank anthony koo, timothy lane, ronald mckinnon, lawrence officer, peter quirk, peter schmidt, mark sniderman, and thomas willett for helpful suggestions. Some reflections on monetary institutions and exchange. Pdf the impact of exchange rate regimes on economic. Exchange rate regimes there are three types of exchange.
In our analysis, we group regimes 1, 2, and 3 under fixed, 4,5,6, and 7 under intermediate, and 8 as float. The raw data suggest that the global trend towards greater exchange rate flexibility that was evident before 1990 has since stopped. Impact of exchange rate regimes on economic growth abstract it has been a challenge to identify a direct correlation between exchange rate regimes and economic growth. The choice of exchange rate regimes in developing countries. However, little direct attention has been paid to the consequences of the choice of exchange rate regime on financial stability, and our study was motivated by this.
Wolf is associate professor at the bmw center for german and european studies at georgetown university. Exchange rate regimes can broadly be categorized into two extremes, namely fixed and floating. Pdf the impact of exchange rate regimes on economic growth. One of the most important issues left unanswered in international finance is the debates over which type of exchange rate can best stimulate economic growth. An empirical study of exchange rate regimes based on data compiled from 150 member countries of the international monetary fund over the past thirty years. On the other hand, it is argued that a poor exchange rate regime choice can lead to a number of detrimental outcomes for an economy. Choice of exchange rate regimes for developing countries april 2001 africa region working paper series no. The choice of an appropriate exchange rate regime for developing countries has been at the center of the debate in international finance for a long time. An exchange rate regime is the system that a countrys monetary authority, generally the central bank, adopts to establish the exchange rate of its own currency against other currencies. Finally, section 5 takes stocks of the current state of the discussion, and concludes. Globalization and financial integration will lead china toward more liberal exchange rate regimes.
This paper demonstrates the extent to which exchange rate regimes really do matter for exchange rate outcomes, and thus helps explain the source of effects of recent research demonstrating trade and macroeconomic consequences of exchange rate regimes. Under most circumstances and for most countries, a system of freely. Economic and financial crises in emerging market economies. Ghosh is the historian of the international monetary fund.
Global trends in the choice of exchange rate regime. The exchange rate is sometimes called the most important price in a highly globalized world. However, little direct attention has been paid to the consequences of the choice of exchange rate regime on financial stability, and our study was motivated by this literature gap. Since the breakdown of the bretton woods system in the early 1970s, countries have adopted a wide variety of regimes, ranging from pure floats at one extreme to currency boards and dollarization at the other. What are the costs and benefits of various exchange rate regimes. Four different schemes for classifying exchange rate regime are investigated. Third, pegged and intermediate exchange rate regimes impede timely external. That is, the profession knows surprisingly little about either the causes or consequences of national choices of exchange rate regimes. Static and dynamic randomeffects multinomial panel models are estimated using simulationbased techniques. But countries with floating regimes are not entirely immuneas indeed the current global crisis, with its epicenter in countries with floating regimes, has amply demonstrated.
Trends in the explanatory variables made little difference to the trend towards greater flexibility. The choice and management of an exchange rate regime is a critical aspect of economic management to safeguard competitiveness, macroeconomic stability, and sustainable development. Choice of exchange rate regimes for developing countries. This paper analyses the choices of exchange rate regimes in developing countries since 1980. Original exchange rate pegs in many cases evolved over time into flexible exchange rates.
The impact of exchange rate regimes on the stability of trade policy we are indebted to david begg, ali kutan, jan svejnar and michael wyzan for comments on an earlier version of this paper. Each type has different characteristics and generates different results. Few topics in international economics are as controversial as the choice of an exchange rate. While a vast theoretical literature explores the choice and consequences of exchange rate regimes, the abundance of possible effects makes it difficult to establish clear relationships between regimes and common macroeconomic policy targets such as inflation and growth. Choices and consequences cambridge, ma, and london. A countrys choice of its exchange rate regime, between governmentmanaged fixed rates and marketdetermined floating rates has significant implications for monetary policy.
Thus, greater crisis susceptibility is a cost of more rigid exchange rate regimes. Click here to download the full report in pdf format exchange rate regimes, author ben carliner argues, are determined by three main factors. Choice of exchange rate regimes for developing countries fahrettin yagci lead economist, aftm1, the world bank email. Exchange rate and monetary policy choices the theory countries have some choice over the combination of policies monetary independence, exchange rate stability and financial integration that they adopt but cannot have all three at once. An analysis of the operation and consequences of exchange rate regimes in an era of increasing international interdependence. Few topics in international economics are as controversial as the choice of an exchange rate regime.
Exchange rate regimes for emerging market economies. For instance, probability, extent, and cost of the financial crises are tightly linked with exchange rate regime choice domac and martinezperia 2003. The nature of exchange rate regimes dartmouth college. Annemarie gulde is assistant director of the policy wing of the african department at.
Exchange rate regimes 4 exchange rate crises as a matter of experience. Further, regime choice can influence the effectiveness of stabilisation policies, 1 theoretically, exchange rate regimes are divided into two categories. Challenging preconceptions is always good, and this is a serious debate. This debate has been dominated by criticism of intermediate regimes such as conventional pegging, and support for floating rate.
Between fixed and flexible exchange rate regimes sebastian edwards working paper 5756 national bureau of economic research 1050 massachusetts avenue cambridge, ma 028 september 1996 this is a revised version of a paper presented at the nber east asian seminar on economics. Since the breakdown of the bretton woods system in the early 1970s, countries have adopted a wide variety of regimes, ranging from pure. On the choice of the exchange rate regimes by chien nan wang chien nan wang is an economist at the federal reserve bank of cleveland. The data also reflect important trends in the industrial structure of the united states.
Between 1980 and 2007, the number of countries with pegged exchange rate regimes has grown substantially. In a fixed exchange rate regime, the domestic currency is tied to another foreign currency, mostly more widespread currencies such as the u. Choosing an exchange rate regime international monetary fund. It is closely related to monetary policy and the two are generally dependent on many of the same factors, such as economic scale and openness, inflation rate, elasticity of the labor market, financial market development. The choice of exchange rate regimes in the mena countries. Each country is free to adopt the exchange rate regime that it considers optimal, and will do so using mostly monetary and sometimes even fiscal policies the distinction amongst these exchange rates. On the choice of the exchangerate regimes by chien nan wang chien nan wang is an economist at the federal reserve bank of cleveland. The choice of exchange rate regimes has long been a controversial topic among. This paper analyses the choice of exchange regimes of 17 economies in the mena region for the period 19902000. Everyday low prices and free delivery on eligible orders. It is closely related to monetary policy and the two are generally dependent on many of the same factors, such as economic scale and openness, inflation rate, elasticity of.
Exchange rate policy and monetary policy implementation. Oct 19, 20 antonio fatas, citing new work by andy rose pdf, suggests that currency regimes dont really matter in particular that membership in the euro has not really been a special problem for peripheral countries. Explanatory variables include oca fundamentals, stabilization considerations, currency crises factors, and political and institutional features. Exchange rate regimes this page intentionally left blank exchange rate regimes choices and consequencesatish r. Of course, any analysis of the evolution of exchange rate regimes in emerging markets must be interpreted with caution, given the measurement problems noted above. An exchange rate regime is the way a monetary authority of a country or currency union manages the currency in relation to other currencies and the foreign exchange market. Any errors and all conclusions are solely the personal responsibility of the authors and should not be attributed to their employers or sponsors. This debate has been dominated by criticism of intermediate regimes such as conventional pegging, and support for floating rate regimes or hard pegs such as a currency board. In the first figure, the exchange rate regimes are presented for the full sample. Exchange rate regimes in the modern era the mit press. Regimes are becoming durable exchange rate regime switches over time 4. The model is tested versus the data in postcommunist transition countries and it is clearly shown the choice of the exchange rate regime presents an important choice.
Most empirical studies trying to analyse the choice of exchange rate regimes have considered. Curr areas class outline fixed vs flexible exchange rates advantages and disadvantages mixed regimes. Fiscal policy and exchange rate regimes chapter subtitle or article title chapter authoranyone who lives within their means suff ers from a lack of imagination. Choice of exchange rate regimes for developing countries english abstract. Research proposal determinants of the choice of exchange. First, policy makers are faced with the structural constraints imposed by the socalled trilemma the inability to maintain the combination of a fixed exchange rate, free capital mobility, and a monetary policy oriented toward domestic needs. Antonio fatas, citing new work by andy rose pdf, suggests that currency regimes dont really matter in particular that membership in the euro has not really been a special problem for peripheral countries challenging preconceptions is always good, and this is a serious debate. Between fixed and flexible exchangerate regimes sebastian edwards working paper 5756 national bureau of economic research 1050 massachusetts avenue cambridge, ma 028 september 1996 this is a revised version of a paper presented at. Choices and consequences few topics in international economics are as controversial as the choice of an exchange rate regime. Choices and consequences few topics in international economics are as controversial as the choice of an exchange. On balance, it seems desirable for china to maintain the managed float in the short run. We can illustrate the mechanics with the central banks balance sheet. An optimum currency area oca model of exchange rate regime choice is estimated.
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