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The Euro bloc, the Dollar bloc and the Yen bloc: how much monetary policy independence can exchange rate flexibility buy in an interdependent world?

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  • Fratzscher, Marcel

Abstract

The paper analyses the trade-off between exchange rate flexibility and monetary policy autonomy. It tests empirically the 'Possible Duality' hypothesis, i.e. whether countries with more flexible currency regimes are indeed able to exert more monetary policy autonomy than those with less flexible ones, and whether moving towards exchange rate flexibility allows countries to gain monetary independence. The results for a set of open emerging markets and ERM countries show no systematic link between exchange rate flexibility and monetary independence. It is also found that the Fed is still the dominant force in world capital markets, although the importance of EU monetary policy decisions has been increasing and a Euro bloc has formed in Europe. JEL Classification: F41, F31, E50

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0154.

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Date of creation: Jun 2002
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Handle: RePEc:ecb:ecbwps:20020154

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Related research

Keywords: error correction model; exchange rate regime; GARCH; international transmission; monetary policy;

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Citations

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Cited by:
  1. W. Jos Jansen, 2003. "Inside the Impossible Triangle:Monetary Policy Autonomy in a Credible Target Zone," MEB Series (discontinued) 2003-13, Netherlands Central Bank, Monetary and Economic Policy Department.
  2. Forssbaeck, Jens & Oxelheim, Lars, 2005. "On the Link between Exchange-Rate Regimes and Monetary-Policy Autonomy: The European Experience," Working Paper Series 637, Research Institute of Industrial Economics.
  3. J. James Reade & Ulrich Volz, 2009. "Leader of the Pack? German Monetary Dominance in Europe Prior to EMU," Economics Series Working Papers 419, University of Oxford, Department of Economics.

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