Optimal Currency Basket Pegs for Developing and Emerging Economies
AbstractThe exchange rate arrangement represents an important policy choice for emerging and transitional economies as they strive to become stable and marketdriven. A wide variety of arrangements have emerged, ranging from currency boards, basket-currency pegs and single-currency pegs to floating rates. Recently the IMF has recommended that, if the exchange value of a currency is to be pegged, it is better to peg to a basket of currencies rather than a single currency. Nonetheless, there has been little theoretical research on the management and optimal design of basket-peg arrangements. In this paper we extend the smallcountry macroeconomic model of Turnovsky to show that an optimally designed basket-peg arrangement can minimize the variance in domestic consumer prices as well as the variance of foreign reserves. The model highlights the importance of the money and bond markets and, therefore, the importance of various interest rate channels. Additionally we show that a trade-weighted currency basket is not only suboptimal, it is at odds with increasing capital market integration. Further our solutions illustrate that the optimal weights will evolve as the domestic economy integrates with the global market for goods and services, and financial instruments.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoArticle provided by Center for Economic Integration, Sejong University in its journal Journal of Economic Integration.
Volume (Year): 16 (2001)
Issue (Month): ()
Optimal; Currency; Basket;
Other versions of this item:
- Joseph Daniels & Peter G. Toumanoff & Marc von der Ruhr, 2001. "Optimal Currency Basket Pegs for Developing and Emerging Economies," Working Papers and Research 0103, Marquette University, Center for Global and Economic Studies and Department of Economics.
- F30 - International Economics - - International Finance - - - General
- P50 - Economic Systems - - Comparative Economic Systems - - - General
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Guy Debelle & Miguel A. Savastano & Paul R. Masson & Sunil Sharma, 1998. "Inflation Targeting as a Framework for Monetary Policy," IMF Economic Issues 15, International Monetary Fund.
- Daniels, Joseph, 1997. "Optimal sterilization policies in interdependent economies," Journal of Economics and Business, Elsevier, vol. 49(1), pages 43-60, February.
- Edison, Hali J & Vardal, Erling, 1990. " Optimal Currency Baskets for Small, Developed Economies," Scandinavian Journal of Economics, Wiley Blackwell, vol. 92(4), pages 559-71.
- Girardin, Eric & Marimoutou, Velayoudom, 1997. "Estimating the credibility of an exchange rate target zone," Journal of International Money and Finance, Elsevier, vol. 16(6), pages 931-944, December.
- Sachs, Jeffrey D, 1996. "Economic Transition and the Exchange-Rate Regime," American Economic Review, American Economic Association, vol. 86(2), pages 147-52, May.
- Daniels, Joseph P & VanHoose, David D, 1999. "The Nonstationarity of Money and Prices in Interdependent Economies," Review of International Economics, Wiley Blackwell, vol. 7(1), pages 87-101, February.
- Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc.
- Zhang, Zhichao & Shi, Nan & Zhang, Xiaoli, 2011.
"China’s new exchange rate regime, optimal basket currency and currency diversification,"
BOFIT Discussion Papers
19/2011, Bank of Finland, Institute for Economies in Transition.
- Zhang, Zhichao & Shi, Nan & Zhang, Xiaoli, 2011. "China’s new exchange rate regime, optimal basket currency and currency diversification," MPRA Paper 32642, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jong-Eun Lee).
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.