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Trade Policy and the Exchange Rate Regime

In: Trade, Development and Political Economy

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  • W. Max Corden

Abstract

The Mexican, Asian and Brazilian crises from 1994 to 1998 have led to a great debate about the choice of exchange-rate regimes for developing countries. In particular, ‘fixed-but-adjustable’ regimes have been shown to be incompatible with high capital mobility. This is not a new conclusion — and indeed is the principal explanation for the breakdown of the Bretton Woods system — but it is one that has been dramatically brought home by these more recent emerging market crises. At the same time, when the exchange rates have been reluctantly allowed to float as a result of crises, there has been excessive instability, as reflected in short-term overshooting of depreciations in the market. Again, the recognition of exchange-rate instability under floating rates is an old theme, stimulated especially by the extreme behaviour of the dollar and the yen during the 1980s and 1990s.

Suggested Citation

  • W. Max Corden, 2001. "Trade Policy and the Exchange Rate Regime," Palgrave Macmillan Books, in: Deepak Lal & Richard H. Snape (ed.), Trade, Development and Political Economy, chapter 2, pages 27-39, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-52368-5_2
    DOI: 10.1057/9780230523685_2
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