Challenging preconceptions is always good, and this is a serious debate. Under most circumstances and for most countries, a system of freely. Curr areas class outline fixed vs flexible exchange rates advantages and disadvantages mixed regimes. Exchange rate regimes for emerging market economies. Exchange rate regimes this page intentionally left blank exchange rate regimes choices and consequencesatish r. This paper analyses the choices of exchange rate regimes in developing countries since 1980. Economic and financial crises in emerging market economies. The research on exchange rate regimes itself is another common topic in highlevel articles and journals. Exchange rate policy and monetary policy implementation. An optimum currency area oca model of exchange rate regime choice is estimated. In our analysis, we group regimes 1, 2, and 3 under fixed, 4,5,6, and 7 under intermediate, and 8 as float.
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. Exchange rate regimes can broadly be categorized into two extremes, namely fixed and floating. 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. A countrys choice of its exchange rate regime, between governmentmanaged fixed rates and marketdetermined floating rates has significant implications for monetary policy. On the choice of the exchangerate regimes by chien nan wang chien nan wang is an economist at the federal reserve bank of cleveland.
Four different schemes for classifying exchange rate regime are investigated. Choices and consequences few topics in international economics are as controversial as the choice of an exchange rate regime. For emerging markets, however, intermediate regimes remain a popular choice though less so than a decade ago. 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. 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. 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. 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.
The nature of exchange rate regimes dartmouth college. The exchange rate is sometimes called the most important price in a highly globalized world. While a vast theoretical literature explores the choice and consequences of exchange. Choosing an exchange rate regime international monetary fund. Any errors and all conclusions are solely the personal responsibility of the authors and should not be attributed to their employers or sponsors. What are the costs and benefits of various exchange rate regimes. Pdf the impact of exchange rate regimes on economic growth. 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. 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.
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. Choices and consequences few topics in international economics are as controversial as the choice of an exchange. Few topics in international economics are as controversial as the choice of an exchange rate regime. This debate has been dominated by criticism of intermediate regimes such as conventional pegging, and support for floating rate. Original exchange rate pegs in many cases evolved over time into flexible exchange rates. Globalization and financial integration will lead china toward more liberal exchange rate regimes. Third, pegged and intermediate exchange rate regimes impede timely external.
Thus, greater crisis susceptibility is a cost of more rigid exchange rate regimes. Each type has different characteristics and generates different results. 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. Explanatory variables include oca fundamentals, stabilization considerations, currency crises factors, and political and institutional features. Annemarie gulde is assistant director of the policy wing of the african department at. The data also reflect important trends in the industrial structure of the united states. Wolf is associate professor at the bmw center for german and european studies at georgetown university. Choice of exchange rate regimes for developing countries april 2001 africa region working paper series no. 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. 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.
Choice of exchange rate regimes for developing countries fahrettin yagci lead economist, aftm1, the world bank email. In a fixed exchange rate regime, the domestic currency is tied to another foreign currency, mostly more widespread currencies such as the u. Finally, section 5 takes stocks of the current state of the discussion, and concludes. 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. 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. An analysis of the operation and consequences of exchange rate regimes in an era of increasing international interdependence. 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. 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. 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. The choice of exchange rate regimes in developing countries. 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.
Few topics in international economics are as controversial as the choice of an exchange rate. Click here to download the full report in pdf format exchange rate regimes, author ben carliner argues, are determined by three main factors. 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. Exchange rate regimes 4 exchange rate crises as a matter of experience.
Global trends in the choice of exchange rate regime. 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. We can illustrate the mechanics with the central banks balance sheet. That is, the profession knows surprisingly little about either the causes or consequences of national choices of exchange rate regimes. The raw data suggest that the global trend towards greater exchange rate flexibility that was evident before 1990 has since stopped. Choices and consequences cambridge, ma, and london. 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. 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. 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. 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. Everyday low prices and free delivery on eligible orders.
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. On balance, it seems desirable for china to maintain the managed float in the short run. Since the breakdown of the bretton woods system in the early 1970s, countries have adopted a wide variety of regimes, ranging from pure. Static and dynamic randomeffects multinomial panel models are estimated using simulationbased techniques. Curr areas class outline fixed vs flexible exchange rates.
Some reflections on monetary institutions and exchange. Most empirical studies trying to analyse the choice of exchange rate regimes have considered. Pdf the impact of exchange rate regimes on economic. Between 1980 and 2007, the number of countries with pegged exchange rate regimes has grown substantially. The book investigates how does the choice of each of the possible exchange rate regime influence the behavior of economic participants. The choice of exchange rate regimes in the mena countries.
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. 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. 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. Regimes are becoming durable exchange rate regime switches over time 4. Further, regime choice can influence the effectiveness of stabilisation policies, 1 theoretically, exchange rate regimes are divided into two categories. Exchange rate regimes there are three types of exchange. 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. This paper analyses the choice of exchange regimes of 17 economies in the mena region for the period 19902000.
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. Choice of exchange rate regimes for developing countries english abstract. 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. Oscar wilde fiscal policy is not wellsuited for stabilizing in.
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