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Exchange Rates and Asymmetric Policy Regimes: When Does Exchange Rate Targeting Pay?

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  • Hughes Hallett, A J

Abstract

Whether exchange rate targeting helps economic performance depends on whether shocks and spillovers are mutually reinforcing or offsetting; hence, on whether the cost of supporting the extra exchange rate target is greater than the degree of coordination it induces. Asymmetries in policy power, spillover effects, external shocks, or the degree of commitment to the exchange rate target, may reinforce these, making it more likely that targeting is damaging. Hence asymmetries are an important contributory factor, but not a fundamental cause of failure. Traditional analysis of identically symmetric economies may suggest that exchange rate targeting is generally welfare-improving, whereas in practice that property needs to be checked out on a case-by-case basis. Copyright 1993 by Royal Economic Society.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 45 (1993)
Issue (Month): 2 (April)
Pages: 191-206

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Handle: RePEc:oup:oxecpp:v:45:y:1993:i:2:p:191-206

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Cited by:
  1. A.J. Hallet, 1998. "When Do Target Zones Work? An Examination of Exchange Rate Targeting as a Device for Coordinating Economic Policies," Open Economies Review, Springer, vol. 9(2), pages 115-138, April.
  2. Nolan, Charles, 2002. "Monetary Stabilisation Policy in a Monetary Union: Some Simple Analytics," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(2), pages 196-215, May.
  3. Fabrice Capoen & Jerome Creel & Pascal Cussy & Hélène Lenoble-Liaud, 2000. "How to manage speculative shocks: intra-European vs. International monetary coordination," Documents de Travail de l'OFCE 2000-01, Observatoire Francais des Conjonctures Economiques (OFCE).
  4. repec:spo:wpecon:info:hdl:2441/2978 is not listed on IDEAS
  5. Creel, Jerome & Capoen, Fabrice & Cussy, Pascal & Lenoble-Liaud, Helene, 2003. "How to manage financial shocks: Intra-European vs. international monetary coordination," Journal of Macroeconomics, Elsevier, vol. 25(4), pages 431-455, December.
  6. Thomas Willett, 1999. "Developments in the Political Economy of Policy Coordination," Open Economies Review, Springer, vol. 10(2), pages 221-253, May.
  7. Rita De Siano & Marcella D'Uva & Giovanna Messina, 1999. "Aree Monetarie Ottimali: Literature Review," Working Papers 2_1999, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.

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