Advanced Search
MyIDEAS: Login

Exchange Rate Regimes and Monetary Policies in Emerging Markets: A Showdown for Few Theoretical Misconceptions

Contents:

Author Info

  • Marko Malovic

    ()
    (Institute of Economic Sciences, Belgrade, Serbia)

Registered author(s):

    Abstract

    The purpose of this paper is to challenge couple of dangerous theoretical misconceptions in open-economy macro, namely, in respect to desirability or sustainability of available exchange rate regimes and inflation targeting framework and their mutual compatibility in small open economies with incomplete (emerging) markets. First of all, we dismiss the ruling »two corner solution« as dogma in scientific disguise. Furthermore, all the benefits of more flexible intermediate regimes (sliding currency bands) as well as empirical support of their wellbeing have been put forward. As to the monetary policies, majority of transition countries recognised superiority of inflation targeting over alternative monetary concepts. However, until very recently some emerging market economies failed to realize the benefits of full-fledged -let alone flexible- inflation targeting. In what follows, the article counters another theoretical dogma: that inflation targeting in emerging market economies must go hand in hand with fully flexible exchange rate regime. Having said that, and again contrary to the mainstream literature in the field, paper exposes some serious weaknesses of the so-called dirty (or managed) floating as an intermediate regime: in particular, its potential sub optimality in practice and its hidden incompatibility with widespread inflation targeting strategies. Paper concludes by reiterating the inevitability of close relationship between inflation targeting and exchange rate targeting and hence suggests several possible reaction functions for the monetary authorities in emerging markets among those already laid out in the related literature.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.ien.bg.ac.rs/index.php/en/2007/2007-12
    Download Restriction: no

    Bibliographic Info

    Article provided by Institute of Economic Sciences in its journal Economic Analysis.

    Volume (Year): 40 (2007)
    Issue (Month): 1-2 ()
    Pages: 17-28

    as in new window
    Handle: RePEc:ibg:eajour:v:40:y:2007:i:1-2:p:17-28

    Contact details of provider:
    Postal: 12 Zmaj Jovina St, 11000 Belgrade, Serbia
    Phone: +381 11 2622 357, 2623-055
    Fax: +381 11 2181 471
    Email:
    Web page: http://www.ien.bg.ac.rs
    More information through EDIRC

    Related research

    Keywords: "Two-corner solution"; crawling/monitoring bands; "dirty float"; flexible inflation targeting; (un)sterilized interventions; small open economy; emerging markets; "BBC" Plus;

    Find related papers by JEL classification:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:ibg:eajour:v:40:y:2007:i:1-2:p:17-28. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zorica Bozic).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.