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Exchange Rate Arrangements For East Asia Post-Crisis: Examining The Case For Open Economy Inflation Targeting

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  • Ramkishen S. Rajan

    ()

  • Tony Cavoli

    ()

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.

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Bibliographic Info

Paper provided by eSocialSciences in its series Working Papers with number id:2718.

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Date of creation: Jul 2010
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Handle: RePEc:ess:wpaper:id:2718

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Keywords: infeasibility; monetary union; East Asia; flexible regime; floaters; East Asia;

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References

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  1. Frankel, Jeffrey & Schmukler, Sergio & Serven, Luis, 2000. "Global transmission of interest rates : monetary independence and the currency regime," Policy Research Working Paper Series 2424, The World Bank.
  2. Nicoletta Batini & Andrew Haldane, 1999. "Forward-Looking Rules for Monetary Policy," NBER Chapters, in: Monetary Policy Rules, pages 157-202 National Bureau of Economic Research, Inc.
  3. Jane Sneddon Little & Giovanni P. Olivei, 1999. "Rethinking the International Monetary System: an overview," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 43(Jun), pages 1-31.
  4. Richard Clarida & Jordi Gali & Mark Gertler, 1997. "Monetary Policy Rules in Practice: Some International Evidence," NBER Working Papers 6254, National Bureau of Economic Research, Inc.
  5. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fixing for Your Life," NBER Working Papers 8006, National Bureau of Economic Research, Inc.
  6. Richard N. Cooper, 1999. "Exchange Rate Choices," Harvard Institute of Economic Research Working Papers 1877, Harvard - Institute of Economic Research.
  7. 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.
  8. 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.
  9. Michael Gavin & Roberto Perotti, 1997. "Fiscal Policy in Latin America," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 11-72 National Bureau of Economic Research, Inc.
  10. Jeffrey Frankel & Andrew Rose, 2002. "An Estimate Of The Effect Of Common Currencies On Trade And Income," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 437-466, May.
  11. 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.
  12. Atish R. Ghosh & Anne-Marie Gulde & Jonathan D. Ostry & Holger C. Wolf, 1997. "Does The Nominal Exchange Rate Regime Matter?," Working Papers 97-09, New York University, Leonard N. Stern School of Business, Department of Economics.
  13. Laurence M. Ball, 1999. "Policy Rules for Open Economies," NBER Chapters, in: Monetary Policy Rules, pages 127-156 National Bureau of Economic Research, Inc.
  14. Graham Bird & Ramkishen Rajan, 2002. "Optimal currency baskets and the third currency phenomenon: exchange rate policy in Southeast Asia," Journal of International Development, John Wiley & Sons, Ltd., vol. 14(8), pages 1053-1073.
  15. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fear of Floating," NBER Working Papers 7993, National Bureau of Economic Research, Inc.
  16. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
  17. 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.
  18. Stephen G. Cecchetti & Hans Genberg & Sushil Wadhwani, 2002. "Asset Prices in a Flexible Inflation Targeting Framework," NBER Working Papers 8970, National Bureau of Economic Research, Inc.
  19. Ball, Laurence, 1999. "Efficient Rules for Monetary Policy," International Finance, Wiley Blackwell, vol. 2(1), pages 63-83, April.
  20. Richard N. Cooper, 1999. "Exchange rate choices," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 43(Jun), pages 99-136.
  21. Jeffrey Frankel & Sergio Schmukler & Luis Serven, 2000. "Verifiability and the Vanishing Intermediate Exchange Rate Regime," NBER Working Papers 7901, National Bureau of Economic Research, Inc.
  22. Taimur Baig, 2001. "Characterizing Exchange Rate Regimes in Post-Crisis East Asia," IMF Working Papers 01/152, International Monetary Fund.
  23. 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.
  24. Eichengreen, Barry, 2001. "What problems can dollarization solve?," Journal of Policy Modeling, Elsevier, vol. 23(3), pages 267-277, April.
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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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