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Monetary regime choices for a semi-open country

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  • Jeffrey A. Frankel

Abstract

This paper considers regime choices facing relatively small, trade-oriented, financially liberalizing, rapidly growing countries such as the East Asian NICs. The classic question of fixed versus flexible exchange rates is considered first. Of the many factors that determine whether the advantages of fixed rates justify the loss of monetary independence, all depend on the openness of the country. One example is the advantage that stable exchange rates promote trade; the magnitude of this effect is estimated in this paper. Another example is the advantage that a fixed exchange rate can serve as a nominal anchor to monetary policy. The second half of the paper reviews the recent literature on monetary rules versus discretion, and then considers four alternative candidates for the nominal anchor for monetary policy: the money supply, nominal GNP, price level, and exchange rate. It is argued that nominal GNP dominates the money supply in general, and dominates the other two candidates under certain conditions.
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  • Jeffrey A. Frankel, 1993. "Monetary regime choices for a semi-open country," Pacific Basin Working Paper Series 93-02, Federal Reserve Bank of San Francisco.
  • Handle: RePEc:fip:fedfpb:93-02
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    1. Unioni monetarie e integrazione economica
      by Alberto Bagnai in Goofynomics on 2016-03-28 14:23:00

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    Cited by:

    1. Barry Eichengreen., 1994. "History and Reform of the International Monetary System," Center for International and Development Economics Research (CIDER) Working Papers C94-041, University of California at Berkeley.
    2. Jorge Carrera & Diego Bastourre, 2004. "Could the Exchange Rate Regime Reduce Macroeconomic Volatility?," Econometric Society 2004 Latin American Meetings 309, Econometric Society.
    3. Cristina Fernández & Andrés González G., 2000. "Integración y vulnerabilidad externa en Colombia," Coyuntura Económica, Fedesarrollo, December.
    4. Domac, Ilker & Peters, Kyle & Yuzefovich, Yevgeny, 2001. "Does the exchange rate regime affect macroeconomic performance : evidence from transition economics," Policy Research Working Paper Series 2642, The World Bank.
    5. Sebastian Edwards, 1996. "The Determinants of the Choice between Fixed and Flexible Exchange-Rate Regimes," NBER Working Papers 5756, National Bureau of Economic Research, Inc.
    6. Pranab Bardhan, 1998. "The Contributions of Endogenous Growth Theory to the Analysis of Development Problems: An Assessment," Palgrave Macmillan Books, in: Fabrizio Coricelli & Massimo di Matteo & Frank Hahn (ed.), New Theories in Growth and Development, chapter 5, pages 97-110, Palgrave Macmillan.
    7. Eichengreen, Barry & Wyplosz, Charles, 1995. "What Do Currency Crises Tell Us About the Future of the International Monetary System?," Center for International and Development Economics Research (CIDER) Working Papers 233418, University of California-Berkeley, Department of Economics.
    8. Yap, Josef T. & Reyes, Celia M., 1993. "Money and Prices in the Philippines, 1981-1992: A Cointegration Analysis," Philippine Journal of Development JPD 1993 Vol. XX No. 1-c, Philippine Institute for Development Studies.

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    More about this item

    Keywords

    East Asia; Pacific Area; Foreign exchange - Law and legislation; Monetary policy;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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