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No Single Currency Regime is Right for All Countries or At All Times

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  • Jeffrey A. Frankel

Abstract

This essay considers some prescriptions that are currently popular regarding exchange rate regimes: a general movement toward floating, a general movement toward fixing, or a general movement toward either extreme and away from the middle. The whole spectrum from fixed to floating is covered (including basket pegs, crawling pegs, and bands), with special attention to currency boards and dollarization. One overall theme is that the appropriate exchange rate regime varies depending on the specific circumstances of the country in question (which includes the classic optimum currency area criteria, as well as some newer criteria related to credibility) and depending on the circumstances of the time period in question (which includes the problem of successful exit strategies). Latin American interest rates are seen to be more sensitive to US interest rates when the country has a loose dollar peg than when it has a tight peg. It is also argued that such relevant country characteristics as income correlations and openness can vary over time, and that the optimum currency area criterion is accordingly endogenous.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7338.

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Date of creation: Sep 1999
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Publication status: published as Essays in International Finance, no. 215 (December 1998), Princeton: Princeton University Press.
Handle: RePEc:nbr:nberwo:7338

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  1. Frankel, Jeffrey A & Okongwu, Chudozie, 1996. "Liberalized Portfolio Capital Inflows in Emerging Markets: Sterilization, Expectations, and the Incompleteness of Interest Rate Convergence," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 1(1), pages 1-23, January.
  2. Michael W. Klein & Nancy P. Marion, 1994. "Explaining the Duration of Exchange-Rate Pegs," NBER Working Papers 4651, National Bureau of Economic Research, Inc.
  3. John Williamson, 1996. "Crawling Band as an Exchange Rate Regime: Lessons from Chile, Colombia and Israel, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, Peterson Institute for International Economics, number 14, July.
  4. Barry J. Eichengreen & Inci Ötker & A. Javier Hamann & Esteban Jadresic & R. B. Johnston & Hugh Bredenkamp & Paul R. Masson, 1998. "Exit Strategies," IMF Occasional Papers 168, International Monetary Fund.
  5. Paul R. Krugman, 1988. "Target Zones and Exchange Rate Dynamics," NBER Working Papers 2481, National Bureau of Economic Research, Inc.
  6. Ricardo Hausmann & Michael Gavin & Carmen Pagés-Serra & Ernesto H. Stein, 1999. "Financial Turmoil and the Choice of Exchange Rate Regime," IDB Publications 4128, Inter-American Development Bank.
  7. Jeffrey A. Frankel & Andrew K. Rose, 1996. "The Endogeneity of the Optimum Currency Area Criteria," NBER Working Papers 5700, National Bureau of Economic Research, Inc.
  8. John Williamson, 1995. "What Role of Currency Boards?," Peterson Institute Press: All Books, Peterson Institute for International Economics, Peterson Institute for International Economics, number pa40, July.
  9. Tamim Bayoumi and Barry Eichengreen., 1993. "One Money or Many? On Analyzing the Prospects for Monetary Unification in Various Parts of the World," Center for International and Development Economics Research (CIDER) Working Papers, University of California at Berkeley C93-030, University of California at Berkeley.
  10. Barry Eichengreen., 1993. "International Monetary Arrangements for the 21st Century," Center for International and Development Economics Research (CIDER) Working Papers, University of California at Berkeley C93-021, University of California at Berkeley.
  11. Andrew K. Rose, 2000. "One money, one market: the effect of common currencies on trade," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 15(30), pages 7-46, 04.
  12. Jeffrey A. Frankel and Shang-Jin Wei., 1993. "Emerging Currency Blocs," Center for International and Development Economics Research (CIDER) Working Papers, University of California at Berkeley C93-026, University of California at Berkeley.
  13. Jonathan David Ostry & Anne Marie Gulde & Atish R. Ghosh & Holger C. Wolf, 1995. "Does the Nominal Exchange Rate Regime Matter?," IMF Working Papers 95/121, International Monetary Fund.
  14. Alesina, Alberto F & Grilli, Vittorio, 1991. "The European Central Bank: Reshaping Monetary Politics in Europe," CEPR Discussion Papers, C.E.P.R. Discussion Papers 563, C.E.P.R. Discussion Papers.
  15. Eichengreen, B., 1992. "Should the Maastricht Treaty be Saved?," Princeton Studies in International Economics, International Economics Section, Departement of Economics Princeton University, 74, International Economics Section, Departement of Economics Princeton University,.
  16. Ricardo Hausmann & Michael Gavin & Carmen Pagés-Serra & Ernesto H. Stein, 1999. "Financial Turmoil and Choice of Exchange Rate Regime," Research Department Publications, Inter-American Development Bank, Research Department 4170, Inter-American Development Bank, Research Department.
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  1. Il teorema di Daverio-Zingales e l'effetto Eichengreen-Krugman
    by Alberto Bagnai in Goofynomics on 2014-05-03 18:46:00
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