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Which Currency Exchange Regime for Emerging Markets? Corner Solutions under Question

  • Jean-Pierre Allegret


    (GATE, University of Lyon, CNRS, ENS-LSH, France)

During the 90s, recurrent exchange rate crises in emerging markets have shown the extreme fragility of soft pegs, the so-called intermediate exchange rate regimes. As a result, numerous academic economists but also International institutions have promoted a new consensus: domestic authorities have to choose their exchange rate regime between only two solutions called corner solutions or extreme regimes: hard pegs or independent floating. This paper questions de relevance of this consensus. We stress the main advantages and costs of each corner solution. We conclude by stressing that intermediate regimes associated to an inflation targeting framework seem a better solution for emerging countries than corner solutions.

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Article provided by Savez ekonomista Vojvodine, Novi Sad, Serbia in its journal Panoeconomicus.

Volume (Year): 54 (2007)
Issue (Month): 4 (December)
Pages: 397-427

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Handle: RePEc:voj:journl:v:54:y:2007:i:4:p:397-427
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  1. 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.
  2. Reinhart, Carmen & Calvo, Guillermo, 2001. "Fixing for your life," MPRA Paper 13873, University Library of Munich, Germany.
  3. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 379-408.
  4. Lars E. O. Svensson, 2000. "Open-Economy Inflation Targeting," NBER Working Papers 6545, National Bureau of Economic Research, Inc.
  5. De Grauwe, Paul & Dewachter, Hans, 1990. "A Chaotic Monetary Model of the Exchange Rate," CEPR Discussion Papers 466, C.E.P.R. Discussion Papers.
  6. Frankel, Jeffrey & Schmukler, Sergio L. & Serven, Luis, 2004. "Global transmission of interest rates: monetary independence and currency regime," Journal of International Money and Finance, Elsevier, vol. 23(5), pages 701-733, September.
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