Experience of and Lessons from Exchange Rate Regimes in Emerging Economies"The paper reviews recent trends in thinking on exchange rate regimes. It begins by classifying countries into regimes, noting the distinction between de facto and de jure regimes, but also noting the low correlation among proposed ways of classifying the latter. The advantages of fixed exchange rates versus floating are reviewed, including the recent evidence on the trade-promoting effects of currency unions. Frameworks for tallying up the pros and cons include the traditional Optimum Currency Area criteria, as well as some new criteria from the experiences of the 1990s. The Corners Hypothesis may now be peaking' as rapidly as it rose, in light of its lack of foundations. Empirical evidence regarding the economic performance of different regimes depends entirely on the classification scheme. A listing of possible nominal anchors alongside exchange rates observes that each candidate has its own vulnerability, leading to the author's proposal to Peg the Export Price (PEP). The concluding section offers some implications for East Asia"--NBER website |
Common terms and phrases
adjustable pegs Adopt Adopt Adopt adopted a currency advantages of fixed advantages of floating Argentina argument Asian Average Growth Rate bands basket peg Bayoumi Brazil capital central bank Chile commodities common currency corners hypothesis crawl credibility crises currency board currency union depreciation devaluation developing countries dollar domestic East Asia East Asian countries economists Ecuador effect Eichengreen emerging market countries euro exchange rate pegs exchange rate regimes exchange rate target export fixed exchange rates floaters floating exchange rates fluctuations foreign exchange market four advantages Frankel GDP GDP GDP Ghosh gold standard Hong Kong independent currencies Indonesia inflation targeting integration interest rates International Finance jure classification Korea macroeconomic managed floating monetary independence monetary policy NBER Working Paper neighbors nominal anchor nominal income targeting optimum currency area proposed recession Reinhart Republic Rogoff Singapore Sturzenegger target zone Thailand trade and investment unhedged variability Yung Chul Park