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Moving to Greater Exchange Rate Flexibility


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  • Inci Ötker


Many countries have moved towards more flexible exchange rate regimes over the last decade to take advantage of greater monetary policy autonomy and flexibility in responding to external shocks. Some reluctance to let go of pegged exchange rates persists, however, despite the benefits of flexibility. The institutional and operational requirements needed to support a floating exchange rate, as well as difficulties in assessing the right time and manner to exit, tend to be additional factors in this reluctance. This volume presents the concrete steps taken by a number of countries in transition to greater exchange rate flexibility and elaborates on the operational ingredients that proved helpful in promoting successful and durable transitions. It attempts to provide a better understanding (and hence a "road map") of how these various operational ingredients were established and coordinated, how their implementation interacted with macro and other conditions, and how they contributed to the smoothness of each transition.

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Paper provided by International Monetary Fund in its series IMF Occasional Papers with number 256.

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Length: 92
Date of creation: 30 Apr 2007
Date of revision:
Handle: RePEc:imf:imfocp:256

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Keywords: Floating exchange rates; exchange rate; inflation; monetary policy; central bank; exchange rate flexibility; foreign exchange; exchange rate regime; exchange rates; flexible exchange rate; floating exchange rate; monetary fund; monetary policy framework; flexible exchange rate regime; flexible exchange rates; exchange rate volatility; national bank; hedging; financial markets; derivative; exchange rate risks; monetary authorities; money market; exchange rate regimes; exchange rate policy; exchange rate risk; monetary targeting; floating exchange rate regime; exchange rate system; exchange rate pass; alternative monetary policy framework; foreign exchange market; nominal exchange rate; monetary framework; exchange rate band; derivative transactions; monetary transmission; monetary targets; exchange rate depreciation; monetary aggregates; financial system; bonds; floating exchange rate system; monetary control; monetary policy implementation; interest rate targeting; derivatives markets; monetary policies; fixed exchange rate; basket of currencies; forward market; currency risk; monetary policy regime; exchange rate bands; monetary policy instruments; currency basket; government securities; real exchange rate; reserve requirements; money markets; financial stability; hedge; exchange rate changes; exchange rate anchor; monetary instruments; exchange risks; hedging instruments; monetary base; derivatives market; exchange risk; open market operations; foreign investment; exchange rate fluctuations; foreign exchange risk; exchange rate guarantees; exchange rate targeting; implicit exchange rate guarantees; monetary management; monetary institutions; monetary regime; exchange rate target; foreign exchange law; exchange rate movements; domestic financial markets; derivatives transactions; bond; liquidity management; exchange rate exposure; monetary stability; exchange rate targets; flexible exchange rate regimes; exchange options; treasury bonds; bond market; monetary policy strategy; monetary anchor; monetary policy operations; financial market; financial sector; fixed exchange rates; derivative instruments; domestic capital; international capital; currency mismatch; financial institutions; international reserves; international capital markets; financial instruments; indexed bonds; domestic capital market; currency depreciation; discount rate; market exchange rates; exchange rate peg; government securities market; monetary union; monetary policy autonomy; monetary objectives; exchange rate policies; foreign exchange transactions; foreign exchange risks; exchange transactions; official exchange rate; exchange rate uncertainty; monetary aggregate; government securities markets; fixed exchange rate regime; exchange rate developments; exchange rate arrangements; tight monetary policy; current accounts; exchange markets; exchange rate adjustment; monetary policy objectives; exchange market intervention; official reserves; transmission of monetary policy; alternative monetary anchor; foreign exchange markets; monetary transmission mechanisms; monetary growth; aggregate demand; exchange rate variability; money market interest rates; currency substitution; monetary authority; exchange rate overshooting; money demand; monetary policy decision; real effective exchange rate; monetary target; contractionary monetary policy; effective exchange rate; monetary instability; reserve requirement; currency transactions; real effective exchange rates; cross exchange rate; multiple exchange rates; exchange rate pressures; monetary policy frameworks; monetary policy transparency; limited exchange rate flexibility; foreign exchange administration; exchange rate appreciation; foreign exchange rates; effective exchange rates; exchange restrictions; inflation-targeting; foreign exchange swaps; exchange rate level; monetary impact; prevailing exchange rate; exchange rate commitment; bilateral exchange rates; monetary policy independence; exchange rate management; domestic monetary policies; domestic money market; exchange rate losses; alternative monetary policy frameworks; nominal exchange rate stability; exchange rate float; currency risks; restrictive monetary policies; monetary transmission mechanism; exchange controls; foreign exchange rate; exchange rate crisis; current account balance; exchange rate stability; exchange swaps; independent monetary policy; real exchange rate appreciation; exchange rate systems; moral hazard; financial market development; financial intermediation; international financial system; government bond market; nominal bonds; derivative products; fixed rate bonds; interest rate policy; derivatives market activity; forward contract; term bonds; government bond; derivative markets; domestic interest rates; long-term bonds; nominal depreciation; stock exchange; interest rate risk; rate bonds;

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Cited by:
  1. S. Rajan, Ramkishen, 2010. "The Evolution and Impact of Asian Exchange Rate Regimes," ADB Economics Working Paper Series 208, Asian Development Bank.
  2. Carvalho, Fabia A. & Minella, André, 2012. "Survey forecasts in Brazil: A prismatic assessment of epidemiology, performance, and determinants," Journal of International Money and Finance, Elsevier, Elsevier, vol. 31(6), pages 1371-1391.
  3. David Vávra & Inci Ötker & Barry Topf & Zbigniew Polanski, 2007. "Coping with Capital Inflows," IMF Working Papers 07/190, International Monetary Fund.
  4. Inci Ötker & Charles Freedman, 2009. "Country Experiences with the Introduction and Implementation of Inflation Targeting," IMF Working Papers 09/161, International Monetary Fund.
  5. Nasha Ananchotikul & Nuwat Nookhwun & Paiboon Pongpaichet & Songklod Rastapana & Phurichai Rungcharoenkitkul, 2010. "The Future of Monetary Policy: Roles of Financial Stability and Exchange Rate," Working Papers, Economic Research Department, Bank of Thailand 2010-07, Economic Research Department, Bank of Thailand.
  6. Qiang Gong & Shen Jia & Justin Yifu Lin, 2009. "Firm Liquidation and Economic Crisis under Unexpected Exchange Rate Shock," Annals of Economics and Finance, Society for AEF, vol. 10(1), pages 1-14, May.


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