No Single Currency Regime is Right for All Countries Or at All TimesInternational Finance Section, Department of Economics, Princeton University, 1999 - Business & Economics - 38 pages This essay considers some prescriptions that are currently popular regarding exchange rate regimes: a general movement toward floating, a general movement toward fixing, or a general movement toward either extreme and away from the middle. The whole spectrum from fixed to floating is covered (including basket pegs, crawling pegs, and bands), with special attention to currency boards and dollarization. One overall theme is that the appropriate exchange rate regime varies depending on the specific circumstances of the country in question (which includes the classic optimum currency area criteria, as well as some newer criteria related to credibility) and depending on the circumstances of the time period in question (which includes the problem of successful exit strategies). Latin American interest rates are seen to be more sensitive to US interest rates when the country has a loose dollar peg than when it has a tight peg. It is also argued that such relevant country characteristics as income correlations and openness can vary over time, and that the optimum currency area criterion is accordingly endogenous. |
Contents
BALANCING THE ADVANTAGES OF FIXED AND FLEXIBLE | 2 |
NO SINGLE CURRENCY REGIME IS RIGHT FOR ALL TIME | 21 |
SUMMARY OF CONCLUSIONS | 29 |
Copyright | |
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advantages of fixed Argentina Argentine Dollarization Argentine interest rate Barry Eichengreen basis point bilateral trade Brazil central bank Coefficient is significant common currency corner solutions country premium crawling credibility crisis currency board currency premium currency unions Department of Economics devaluation domestic effect Eichengreen-Krugman endogeneity of trade ESSAYS IN INTERNATIONAL euro exchange-rate peg exchange-rate regime exchange-rate target Exit Strategies federal funds rate Federal Reserve FINANCE SECTION DEPARTMENT fixed exchange rate free float Hong Kong hyperinflation hypothesis impossible trinity income correlations interest rates intermediate regimes International Economics International Finance Section International Monetary Jeffrey Kenen Krugman Mexico monetary independence monetary policy monetary union Money-market rate neighbors nominal anchor OCA criterion OCA line optimal optimum currency area parameters Paul Krugman REGIME IS RIGHT Regional Trading regression seigniorage Single Currency Regime Special Paper T-bill rate target zone trade integration trade links trade patterns U.S. dollars U.S. federal funds U.S. interest rates United variable