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Exchange Rate Arrangements for East Asia Post-Crisis: Examining the Case for Open Economy Inflation Targeting

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Author Info

  • Tony Cavoli

    ()
    (School of Economics, University of Adelaide, Australia)

  • Ramkishen Rajan

    ()
    (School of Economics, University of Adelaide, Australia)

Abstract

The infeasibility of a monetary union for East Asia in the near future, as well as the limitations of other forms of super fixes, appears to leave a flexible regime as the only viable policy option. This paper first deliberates on the case for and against a flexible regime. To anticipate the main conclusion - while favoring relatively more flexible regimes, emerging economies in East Asia and elsewhere have continued to heavily manage their currencies despite being officially described as ?floaters?. The paper goes on to explore the case for and operational mechanics behind an open inflation targeting regime which has increasingly been advocated for small and open economies in East Asia and elsewhere. The importance of incorporating the exchange rate in open economy monetary policy rules is stressed. The post-crisis East Asian monetary policy arrangements provide a suitable context for analyzing what part the exchange rate might play in the construction of an inflation targeting regime and there is evidence suggesting that East Asian monetary authorities have been attempting to manage the variability of the currency movements.

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File URL: http://www.adelaide.edu.au/cies/papers/0310.pdf
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Bibliographic Info

Paper provided by University of Adelaide, Centre for International Economic Studies in its series Centre for International Economic Studies Working Papers with number 2003-10.

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Length: 45 pages
Date of creation: Apr 2003
Date of revision:
Handle: RePEc:adl:cieswp:2003-10

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Related research

Keywords: East Asia; Exchange Rate Regime; Fixed versus Float; Inflation Targeting; Monetary Policy Rules;

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References

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  1. Andrew G. Haldane & Nicoletta Batini, 1998. "Forward-Looking Rules for Monetary Policy," NBER Working Papers 6543, National Bureau of Economic Research, Inc.
  2. G. Bird & R. Rajan, 2001. "Would International Currency Taxation and Currency Stabilisation in Developing Countries?," Journal of Development Studies, Taylor & Francis Journals, vol. 37(3), pages 21-38.
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  14. Jeffrey A. Frankel & Shang-Jin Wei, 1994. "Yen Bloc or Dollar Bloc? Exchange Rate Policies of the East Asian Economies," NBER Chapters, in: Macroeconomic Linkage: Savings, Exchange Rates, and Capital Flows, NBER-EASE Volume 3, pages 295-333 National Bureau of Economic Research, Inc.
  15. Laurence M. Ball, 1999. "Policy Rules for Open Economies," NBER Chapters, in: Monetary Policy Rules, pages 127-156 National Bureau of Economic Research, Inc.
  16. C. Fred Bergsten & Olivier Davanne & Pierre Jacquet, 1999. "The Case for Joint Management of Exchange Rate Flexibility," Working Paper Series wp99-9, Peterson Institute for International Economics.
  17. Jeffrey A. Frankel, 1999. "No Single Currency Regime is Right for All Countries or At All Times," NBER Working Papers 7338, National Bureau of Economic Research, Inc.
  18. Tony Cavoli & Ramkishen Rajan, 2003. "Designing Appropriate Exchange Rate Regimes for East Asia: Inflation Targeting and Monetary Policy Rules," Centre for International Economic Studies Working Papers 2003-09, University of Adelaide, Centre for International Economic Studies.
  19. Richard N. Cooper, 1999. "Exchange Rate Choices," Harvard Institute of Economic Research Working Papers 1877, Harvard - Institute of Economic Research.
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Cited by:
  1. Peter Wilson & Henry Ng Shang Ren, 2006. "Managing Exchange Rate Volatility: A Comparative Counterfactual Analysis of Singapore 1994 to 2003," SCAPE Policy Research Working Paper Series 0608, National University of Singapore, Department of Economics, SCAPE.
  2. Peter Wilson & Henry Ng Shang Ren, 2006. "Managing Exchange Rate Volatility : A Comparative Counterfactual Analysis Of Singapore 1994 To 2003," Macroeconomics Working Papers 22584, East Asian Bureau of Economic Research.

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