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Currency Regime and Monetary Autonomy. Empirical Evidence Using Recent and Global Data from 1990 to 2007

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  • Hiroyuki Taguchi

Abstract

This paper analyzes the exchange rate regimes from the perspective of monetary independence. To be specific, using recent and global data, we examine the sensitivity of domestic interest rates to the international interest rate, by conducting co-integration tests and by estimating the adjustment speeds through error-correction model, for different de facto currency regimes and for different types of capital markets. Our estimation results basically support the traditional views of ‘impossible trinity’, as far as the cases with open capital markets are concerned. The floating regime shows the less sensitivity of domestic interest rates to the international interest rate than the fixed regime does, which implies some capacity for domestic monetary autonomy under the floating regime. The cases with closed capital markets, on the other hand, include the cases showing high sensitivity of interest rates in some emerging market economies, which might imply the ‘fear of floating’ hypothesis.

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File URL: http://hdl.handle.net/10.1080/10168737.2011.607255
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Economic Journal.

Volume (Year): 25 (2010)
Issue (Month): 3 (October)
Pages: 341-358

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Handle: RePEc:taf:intecj:v:25:y:2011:i:3:p:341-358

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Cited by:
  1. Taguchi, Hiroyuki, 2011. "Monetary autonomy in emerging market economies: The role of foreign reserves," Emerging Markets Review, Elsevier, vol. 12(4), pages 371-388.

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