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Exchange Rate Regime Shift in Reaction to a Changing Environment: A Case Study of Kuwait - Modifiche del regime dei tassi di cambio a seguito di modifiche nelle condizioni del sistema: il caso del Kuwait

Author

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  • Moosa, Imad A.

    () (RMIT University School of Economics, Finance and Marketing)

Abstract

Two propositions are verified about the exchange rate regime of a basket peg, which is adopted by some developing countries. The first is that by pegging the domestic currency to an import-weighted basket, the economy can be insulated from the imported inflation resulting purely from change in exchange rates. The second proposition is that profitable arbitrage can be conducted by going short on the domestic currency and long on the basket (or vice versa) unless the interest rate on the domestic currency is a weighted average of the interest rates on the basket currencies. Several arguments are presented, suggesting that the recent change in the exchange rate regime change of Kuwait from a dollar peg to a basket peg is a step in the right direction. - In questo studio vengono verificate due proposizioni concernenti il regime di cambio ancorato ad un paniere, adottato da alcuni paesi sviluppati. La prima afferma che, agganciando la valuta domestica a un paniere ponderato sulla base delle importazioni, l’economia può essere protetta dall’inflazione che ne conseguirebbe semplicemente modificando i tassi di cambio. La seconda argomenta che si può effettuare un arbitraggio redditizio attraverso vendite allo scoperto di valuta domestica e vendite al rialzo sul paniere (o viceversa), a meno che il tasso di interesse della valuta domestica non sia una media ponderata dei tassi delle valute del paniere. Lo studio formula una serie di argomentazioni che portano a concludere che il recente passaggio adottato in Kuwait da un regime di cambi ancorato al dollaro ad un regime ancorato a un paniere di valute rappresenta un passo nella giusta direzione.

Suggested Citation

  • Moosa, Imad A., 2011. "Exchange Rate Regime Shift in Reaction to a Changing Environment: A Case Study of Kuwait - Modifiche del regime dei tassi di cambio a seguito di modifiche nelle condizioni del sistema: il caso del Kuw," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 64(2), pages 237-255.
  • Handle: RePEc:ris:ecoint:0623
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    References listed on IDEAS

    as
    1. Lars Hörngren & Anders Vredin, 1989. "Exchange risk premia in a currency basket system," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 125(2), pages 311-325, June.
    2. Christoffersen, Peter F & Giorgianni, Lorenzo, 2000. "Interest-Rate Arbitrage in Currency Baskets: Forecasting Weights and Measuring Risk," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(2), pages 242-253, April.
    3. Martin Klein, 1989. "Arbitrage and interest rates on currency baskets," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 125(2), pages 296-310, June.
    4. Pikkarainen, Pentti, 1991. "International portfolio diversification: the basket-peg regime," Journal of International Money and Finance, Elsevier, vol. 10(3), pages 432-442, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Exchange Rate Regimes; Interest Arbitrage; Imported Inflation; Middle East; Kuwait;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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