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Revisiting Exchange Rate Rules

Author

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  • Kathryn M. E. Dominguez

    (University of Michigan
    NBER (National Bureau of Economic Research))

Abstract

What distinguishes foreign exchange interventions that are stabilizing from those that are manipulative? In the current no-official-agreed-upon rules environment any country that intervenes and builds up bilateral trade surpluses opens itself to charges of currency manipulation. Emerging market countries are especially susceptible because many of them rely on exchange rate stabilization policies to offset external shocks and facilitate trade. This paper proposes an approach to setting international exchange rate policy rules that discourage currency manipulation as well as spurious allegations of manipulation. It examines how intervention operations work, and demonstrates how counterfactual matching techniques can be used to test for causal links between intervention policies and exchange rate movements.

Suggested Citation

  • Kathryn M. E. Dominguez, 2020. "Revisiting Exchange Rate Rules," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(3), pages 693-719, September.
  • Handle: RePEc:pal:imfecr:v:68:y:2020:i:3:d:10.1057_s41308-020-00120-6
    DOI: 10.1057/s41308-020-00120-6
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    More about this item

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls

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