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Achieving Exchange Rate Stability in a Tripolar World: A Target-Zone System with a Rotating Anchor

In: Price Stabilization in the 1990s

Author

Listed:
  • Kenneth Rogoff
  • Donald L. Kohn
  • Reiner König

Abstract

This chapter considers approaches to choosing an anchor in a target zone exchange rate system among the three major currencies: the yen, the DM and the dollar. Though there is as yet no impetus for a world target zone regime, this situation may well change over the next decade. The present G-7 coordination is generally considered to have been successful in reducing exchange market volatility, but the evidence presented in this chapter calls this view into question. The results here also cast doubt on the view that exchange rate volatility would substantially abate if monetary authorities could only succeed in bringing inflation all the way down to zero. For cross-rates between the dollar, yen and DM, the link between inflation rate levels (or differences) and exchange rate volatility appears tenuous at best.

Suggested Citation

  • Kenneth Rogoff & Donald L. Kohn & Reiner König, 1993. "Achieving Exchange Rate Stability in a Tripolar World: A Target-Zone System with a Rotating Anchor," Palgrave Macmillan Books, in: Kumiharu Shigehara (ed.), Price Stabilization in the 1990s, chapter 11, pages 357-389, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-12893-8_11
    DOI: 10.1007/978-1-349-12893-8_11
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