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Exchange Rate Arrangements for East Asia Post-Crisis: Examining the Case for Open Economy Inflation Targeting

  • Tony Cavoli

    ()

    (School of Economics, University of Adelaide, Australia)

  • Ramkishen Rajan

    ()

    (School of Economics, University of Adelaide, Australia)

The infeasibility of a monetary union for East Asia in the near future, as well as the limitations of other forms of super fixes, appears to leave a flexible regime as the only viable policy option. This paper first deliberates on the case for and against a flexible regime. To anticipate the main conclusion - while favoring relatively more flexible regimes, emerging economies in East Asia and elsewhere have continued to heavily manage their currencies despite being officially described as ?floaters?. The paper goes on to explore the case for and operational mechanics behind an open inflation targeting regime which has increasingly been advocated for small and open economies in East Asia and elsewhere. The importance of incorporating the exchange rate in open economy monetary policy rules is stressed. The post-crisis East Asian monetary policy arrangements provide a suitable context for analyzing what part the exchange rate might play in the construction of an inflation targeting regime and there is evidence suggesting that East Asian monetary authorities have been attempting to manage the variability of the currency movements.

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Paper provided by University of Adelaide, Centre for International Economic Studies in its series Centre for International Economic Studies Working Papers with number 2003-10.

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Length: 45 pages
Date of creation: Apr 2003
Date of revision:
Handle: RePEc:adl:cieswp:2003-10
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  1. Kai Leitemo & �istein R�island & Ragnar Torvik, 2005. "Monetary policy rules and the exchange rate channel," Applied Financial Economics, Taylor & Francis Journals, vol. 15(16), pages 1165-1170.
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