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Limiting Moral Hazard and Reducing Risk in International Capital Flows

In: Trade, Development and Political Economy

Author

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  • Ronald I. McKinnon

Abstract

The current consensus in the academic literature, endorsed by the IMF and other international organizations, is that one of the main lessons of recent financial crises in East Asia and Latin America is the need for more flexible exchange-rate arrangements. Stanley Fischer, the Deputy Managing Director of the International Monetary Fund, stated the matter thus: There is a tradeoff between the greater short-run volatility of the real exchange rate in a flexible rate regime versus the greater probability of a clearly defined external crisis financial crisis when the exchange rate is pegged. The virulence of the recent crises is likely to shift the balance towards the choice of more flexible exchange rate systems, including crawling pegs with wide bands. (Fischer, 1999)

Suggested Citation

  • Ronald I. McKinnon, 2001. "Limiting Moral Hazard and Reducing Risk in International Capital Flows," Palgrave Macmillan Books, in: Deepak Lal & Richard H. Snape (ed.), Trade, Development and Political Economy, chapter 4, pages 57-77, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-52368-5_4
    DOI: 10.1057/9780230523685_4
    as

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