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Proposed strategy for a regional exchange rate arrangement in post-crisis East Asia Author info | Abstract | Publisher info | Download info | Related research | Statistics Kawai, Masahiro
Takagi, Shinji
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After discussing major conceptual, and empirical issues relevant to the exchange rate policies of East Asian countries, the authors propose a regional exchange rate arrangement designed to promote intra-regional exchange rate stability, and regional economic growth. They argue that: 1) For developing countries, exchange rate volatility tends to significantly hurt trade and investment, making it inadvisable to adopt a system of freely floating exchange rates. 2) Given the high share of intra-regional trade, and the similarity of trade composition in East Asia, exchange rate policy should be directed toward maintaining intra-regional exchange rate stability, to promote trade, investment, and economic growth. 3) the current policy of maintaining exchange rate stability against U.S. dollar as an informal, uncoordinated mechanisms for ensuring intra-regional exchange rate stability is sub-optimal. A pragmatic policy option - conducive to a more robust framework for cooperation in monetary, and exchange rate policy - wold be a coordinated action to shift the target of nominal exchange rate stability, to a basket of tri-polar currencies (the U.S. dollar, the Japanese yen, and the Euro). This alternative would better reflect the region's diverse structure of trade, and foreign direct investment.The authors envision no rigid peg. Instead, at least initially, each country could choose its own formal exchange rate arrangement - be it currency board, a crawling peg, or a basket peg with wide margins. At times of crisis, the peg might be temporarily suspended, subject to the rule that the exchange rate would be restored to the original level as soon as practical. Only in extreme circumstances, would the level be adjusted to reflect new equilibrium conditions.
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Paper provided by The World Bank in its series Policy Research Working Paper Series with number
2503.
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Date of creation: 31 Dec 2000Date of revision:
Handle: RePEc:wbk:wbrwps:2503Contact details of provider: Postal: 1818 H Street, N.W., Washington, DC 20433 Email: Web page: http://www.worldbank.org/ More information through EDIRC
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Keywords: Environmental Economics&Policies ; Economic Stabilization ; Macroeconomic Management ; Fiscal&Monetary Policy ; Economic Theory&Research ; Other versions of this item:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.: Kawai, Masahiro & Akiyama, Shigeru, 2000.
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Other versions: Esteban Jadresic & Paul R. Masson & Paolo Mauro & Michael Mussa & Alexander K. Swoboda & Andrew Berg, 2000.
"Exchange Rate Regimes in an Increasingly Integrated World Economy ,"
IMF Occasional Papers
193, International Monetary Fund.
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Steven Radelet & Jeffrey D. Sachs, 1998.
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Brookings Papers on Economic Activity ,
Economic Studies Program, The Brookings Institution, vol. 29(1998-1), pages 1-90.
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"Capital Mobility in Developing Countries: Some Measurement Issues and Empirical Estimates ,"
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"The Dynamic Effects of Aggregate Demand and Supply Disturbances ,"
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Reserve Bank of New Zealand Discussion Paper Series
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2142, C.E.P.R. Discussion Papers.
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The Quarterly Journal of Economics ,
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"Fixing for Your Life ,"
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"The Yen and Its East Asian Neighbors 1980-1995: Cooperation or Competition? ,"
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Full
references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
Kawai, Masahiro & Newfarmer, Richard & Schmukler, Sergio, 2001.
"Crisis and contagion in East Asia : nine lessons ,"
Policy Research Working Paper Series
2610, The World Bank.
[Downloadable!]
OGAWA Eiji & SHIMIZU Junko, 2007.
"Progress toward a Common Currency Basket System in East Asia ,"
Discussion papers
07002, Research Institute of Economy, Trade and Industry (RIETI).
[Downloadable!]
Abhijit Sen Gupta & Amitendu Palit, 2008.
"Feasibility of an Asian Currency Unit ,"
Indian Council for Research on International Economic Relations, New Delhi Working Papers
208, Indian Council for Research on International Economic Relations, New Delhi, India.
[Downloadable!]
Kuroda, 2002.
"Stregthening Regional Financial Cooperation in East Asia ,"
Finance Working Papers
418, East Asian Bureau of Economic Research.
[Downloadable!]
Haruhiko Kuroda & Masahiro Kawai, 2003.
"Strengthening Regional Financial Cooperation in East Asia ,"
Finance Working Papers
483, East Asian Bureau of Economic Research.
[Downloadable!]
Lamberte, Mario B. & Milo, Melanie S. & Pontines, Victor, 2001.
"NO to ¥E$? Enhancing Economic Integration in East Asia through Closer Monetary Cooperation ,"
Discussion Papers
DP 2001-16, Philippine Institute for Development Studies.
[Downloadable!]
Masahiro Kawai & Richard Newfarmer & Sergio L. Schmukler, 2003.
"Financial Crises: Nine Lessons From East Asia ,"
Finance Working Papers
482, East Asian Bureau of Economic Research.
[Downloadable!]
Monzur Hossain, 2008.
"Exchange Rate Regime Transition Dynamics In East Asia ,"
AIUB Bus Econ Working Paper Series
AIUB-BUS-ECON-2008-03, American International University-Bangladesh, Office of Research and Publications (ORP), revised Jan 2008.
[Downloadable!]
Eiji Ogawa & Junko Shimizu, 2006.
"Stabilization of Effective Exchange Rates Under Common Currency Basket Systems ,"
NBER Working Papers
12198, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
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