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G3 Exchange Rate Relationships: A Recap of the Record and a Review of Proposals for Change

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  • Richard H. Clarida

Abstract

This paper is a recap of G3 exchange rate relationships since the collapse of Bretton Woods and an analysis of recent proposals for changing the way the G3 countries currently conduct exchange rate policy. We seek to understand these proposals in the context of the status quo monetary policies and intervention arrangements that are likely to be pursued by the G3 central banks in the absence of any formal arrangements among their governments to limit exchange rate volatility. The advocates of the proposals for change have made their assessment of the global costs of exchange rate volatility and (their estimates) of exchange rate misalignments, especially as these apply to the emerging economies through their linkages to the global capital markets. In their view, the status quo is unacceptable, and a sustained effort to limit G3 exchange rate fluctuations would deliver benefits to the world economy that would outweigh the value that they place on any loss of monetary autonomy in the G3 that would be required to maintain such a system. The skeptics make a positive, not a normative, judgment that the sorts of proposals that are on the table will not, in practice, get around the impossible trinity' of international finance.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7434.

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Date of creation: Dec 1999
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Publication status: published as Group of Thirty Occasional Paper, no. 59 (September 1999).
Handle: RePEc:nbr:nberwo:7434

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  1. Sam Y. Cross, 1998. "All about the foreign exchange market in the United States," Monograph, Federal Reserve Bank of New York, number 1998aatfemitu.
  2. Martin Feldstein, 1999. "Self-Protection for Emerging Market Economies," NBER Working Papers 6907, National Bureau of Economic Research, Inc.
  3. Peter B. Kenen, 1994. "Managing the World Economy: Fifty Years After Bretton Woods," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 48.
  4. Robert E. Cumby & John Huizinga, 1990. "The Predictability of Real Exchange Rate Changes in the Short and Long Run," NBER Working Papers 3468, National Bureau of Economic Research, Inc.
  5. Kathryn Dominguez & Jeffrey A. Frankel, 1990. "Does Foreign Exchange Intervention Work?," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 16.
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Cited by:
  1. Jeffrey A. Frankel & Nouriel Roubini, 2001. "The Role of Industrial Country Policies in Emerging Market Crises," NBER Working Papers 8634, National Bureau of Economic Research, Inc.
  2. Bofinger, Peter, 2000. "A framework for stabilizing the euro/yen/dollar triplet," The North American Journal of Economics and Finance, Elsevier, vol. 11(2), pages 137-151, December.
  3. Reinhart, Carmen & Reinhart, Vincent, 2001. "What hurts most?: G-3 exchange rate or interest rate volatility," MPRA Paper 14098, University Library of Munich, Germany.
  4. Wyplosz, Charles, 2001. "Exchange Rate Regimes: Some Lessons from Postwar Europe," CEPR Discussion Papers 2723, C.E.P.R. Discussion Papers.
  5. Anna Schwartz, 2000. "The Rise and Fall of Foreign Exchange Market Intervention as a Policy Tool," Journal of Financial Services Research, Springer, vol. 18(2), pages 319-339, December.
  6. Portes, Richard, 1999. "Global Financial Markets and Financial Stability: Europe's Role," CEPR Discussion Papers 2298, C.E.P.R. Discussion Papers.
  7. Reinhart, Carmen & Reinhart, Vincent, 2002. "Is a G-3 Target Zone on Target for Emerging Markets?," MPRA Paper 7581, University Library of Munich, Germany.
  8. Gerardo ESQUIVEL & Felipe LARRAIN B., 2002. "The Impact Of G-3 Exchange Rate Volatility On Developing Countries," G-24 Discussion Papers 16, United Nations Conference on Trade and Development.
  9. Kenneth N. Kuttner & Adam S. Posen, 2000. "Inflation, Monetary Transparency, and G3 Exchange Rate Volatility," Working Paper Series WP00-6, Peterson Institute for International Economics.
  10. Reinhart, Carmen & Reinhart, Vincent, 2000. "What does a G-3 target zone mean for emerging-market economies?," MPRA Paper 14099, University Library of Munich, Germany.

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