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Which Currency Exchange Regime for Emerging Markets? Corner Solutions under Question

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  • Jean-Pierre Allegret

    ()
    (GATE, University of Lyon, CNRS, ENS-LSH, France)

Abstract

During the 90s, recurrent exchange rate crises in emerging markets have shown the extreme fragility of soft pegs, the so-called intermediate exchange rate regimes. As a result, numerous academic economists but also International institutions have promoted a new consensus: domestic authorities have to choose their exchange rate regime between only two solutions called corner solutions or extreme regimes: hard pegs or independent floating. This paper questions de relevance of this consensus. We stress the main advantages and costs of each corner solution. We conclude by stressing that intermediate regimes associated to an inflation targeting framework seem a better solution for emerging countries than corner solutions.

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File URL: http://www.panoeconomicus.rs/casopis/osmibroj/which%20currency%20exchange%20regime%20for%20emerging%20markets.pdf
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Bibliographic Info

Article provided by Savez ekonomista Vojvodine, Novi Sad, Serbia in its journal Panoeconomicus.

Volume (Year): 54 (2007)
Issue (Month): 4 (December)
Pages: 397-427

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Handle: RePEc:voj:journl:v:54:y:2007:i:4:p:397-427

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Web page: http://www.panoeconomicus.rs/

Related research

Keywords: Soft peg; Hard peg; Corner solution; Inflation targeting;

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  1. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear Of Floating," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 379-408, May.
  2. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fixing for Your Life," NBER Working Papers 8006, National Bureau of Economic Research, Inc.
  3. Svensson, L.E.O., 1998. "Open-Economy Inflation Targeting," Papers 638, Stockholm - International Economic Studies.
  4. Jeffrey A. Frankel & Sergio L. Schmukler & Luis Serven, 2002. "Global Transmission of Interest Rates: Monetary Independence and Currency Regime," NBER Working Papers 8828, National Bureau of Economic Research, Inc.
  5. Carmen M. Reinhart & Vincent Raymond Reinhart, 2002. "What Hurts Emerging Markets Most? G3 Exchange Rate or Interest Rate Volatility?," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 133-170 National Bureau of Economic Research, Inc.
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