Discussion of Charles Engel and Feng Zhu’s paper

This is a creative and thought-provoking paper. In many ways, it covers familiar ground for students of open economy macroeconomics, but the contribution of the paper is to uncover some surprising and novel empirical findings within this terrain. What the paper does is to explore a series of exchange rate “puzzles” that have been widely recognised and studied in the literature, but it then asks whether these puzzles appear equally perplexing when there is no nominal exchange rate movement; ie under pegged exchange rate regimes. After all, if money was completely neutral and monetary policy irrelevant, we should see no difference in the behaviour of goods and assets prices between fixed and flexible regimes.