Exchange Rate Regime ChoiceTraditionally the choice of exchange rate regime has been seen as a second-best policy choice, which can be directed toward mitigating the distortionary effects of price or information rigidities. In this paradigm the optimal degree of exchange rate flexibility is found to depend of the source and nature of shocks hitting an economy. More recent literature views the exchange rate as a widely and frequently seen manifestation of government policy with careful exchange-rate management emerging as a tool that can enhance shaky policy credibility. |
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advice on exchange asset markets business cycles reveals capita output relative choice is lamentably choice of exchange choice of exchange-rate Countries face Dartmouth College degree of wage discipline against inflation domestic money domestic shocks enhance shaky European Monetary System exchange rate changes exchange rate flexibility exchange rate policy exchange rate regime exchange-rate regime choice exchange-rate regime depending fixed exchange rate flexibility seems unrelated flexible exchange rates foreign demand foreign interest rates foreign nominal shocks free from non-market fully credible high factor mobility International Monetary Fund long-term output growth market failure Mathieson monetary autonomy Mundell nature of shocks open economies Optimum Currency Areas output stabilization particular credibility structure provided little insulation rate flexibility seems rate for macroeconomic rate regime choice rate would protect recent literature views second-best policy choice single currency single developed country source and nature stabilize domestic output trade flows unified exchange market UNIVERSITY OF CALIFORNIA wage indexation