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Too Sensational: On the Choice of Exchange Rate Regimes

Author

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  • W. Max Corden

    () (University of Melbourne)

Abstract

Most of the literature on exchange rate regimes has focused on the developed countries. Since the recent crises in emerging markets, however, attention has shifted to the choice of exchange rate regimes for developing countries, especially those that are more integrated into the world capital markets. In Too Sensational, W. Max Corden presents a systematic and accessible overview of the choice of exchange rate regimes. Reviewing many types of regimes, he shows how the choice of an exchange rate regime is related to both fiscal policy and trade policy. Building on the theory of optimum currency areas, Corden develops an analytic framework of three approaches (nominal anchor, real targets, and exchange rate stability) and three polar exchange rate regimes (absolutely fixed, pure floating, and fixed but adjustable). He considers all other regimes to be mixtures of two or three of the polar regimes. Beginning with theory and later turning to case studies of countries in Asia, Europe, and Latin America, Corden focuses on how economies react to negative and positive shocks under various exchange rate regimes. He examines in particular the Asian and Latin American currency crises of the 1990s. He concludes that although "too sensational" crises have discredited fixed but adjustable regimes, the extremes of absolutely fixed regimes or pure floating regimes need not be chosen.

Suggested Citation

  • W. Max Corden, 2004. "Too Sensational: On the Choice of Exchange Rate Regimes," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262532697, January.
  • Handle: RePEc:mtp:titles:0262532697
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    References listed on IDEAS

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    1. Alberto Alesina & Enrico Spolaore, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, Oxford University Press, pages 1027-1056.
    2. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, pages 323-351.
    3. Robert J. Barro, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, Oxford University Press, pages 407-443.
    4. Barro, Robert J. & Lee, Jong-Wha, 1993. "International comparisons of educational attainment," Journal of Monetary Economics, Elsevier, pages 363-394.
    5. Kenneth J. Arrow, 1962. "The Economic Implications of Learning by Doing," Review of Economic Studies, Oxford University Press, vol. 29(3), pages 155-173.
    6. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-162, May.
    7. Alberto Alesina & Enrico Spolaore, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, Oxford University Press, pages 1027-1056.
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    Cited by:

    1. Jeffrey G. Williamson & Emmanuel S. de Dios, 2014. "Has the Philippines forever lost its chance at industrialization?," Philippine Review of Economics, University of the Philippines School of Economics and Philippine Economic Society, vol. 51(2), pages 47-66, December.

    More about this item

    Keywords

    exchange rate regimes; developing countries; fiscal policy; trade policy; Asia; Europe; Latin America;

    JEL classification:

    • F3 - International Economics - - International Finance
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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