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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. Tony Cavoli & Ramkishen Rajan, 2003. "Designing Appropriate Exchange Rate Regimes for East Asia: Inflation Targeting and Monetary Policy Rules," Centre for International Economic Studies Working Papers 2003-09, University of Adelaide, Centre for International Economic Studies.
  2. Laurence Ball, 1998. "Policy Rules for Open Economies," NBER Working Papers 6760, National Bureau of Economic Research, Inc.
  3. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1997. "Monetary Policy Rules in Practice: Some International Evidence," Working Papers 97-32, C.V. Starr Center for Applied Economics, New York University.
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  7. Richard N. Cooper, 1999. "Exchange rate choices," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 43(Jun), pages 99-136.
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  9. Andrew G. Haldane & Nicoletta Batini, 1998. "Forward-Looking Rules for Monetary Policy," NBER Working Papers 6543, National Bureau of Economic Research, Inc.
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  14. Guy Debelle, 2001. "The Case for Inflation Targeting in East Asian Countries," RBA Annual Conference Volume, in: David Gruen & John Simon (ed.), Future Directions for Monetary Policies in East Asia Reserve Bank of Australia.
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  18. Taimur Baig, 2001. "Characterizing Exchange Rate Regimes in Post-Crisis East Asia," IMF Working Papers 01/152, International Monetary Fund.
  19. Stanley Fischer, 2001. "Exchange Rate Regimes: Is the Bipolar View Correct?," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 3-24, Spring.
  20. Jeffrey Frankel & Sergio Schmukler & Luis Serven, 2000. "Verifiability and the Vanishing Intermediate Exchange Rate Regime," NBER Working Papers 7901, National Bureau of Economic Research, Inc.
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  23. Michael Gavin & Roberto Perotti, 1997. "Fiscal Policy in Latin America," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 11-72 National Bureau of Economic Research, Inc.
  24. Kai Leitemo & Øistein Røisland & Ragnar Torvik, 2005. "Monetary policy rules and the exchange rate channel," Applied Financial Economics, Taylor & Francis Journals, vol. 15(16), pages 1165-1170.
  25. Richard N. Cooper, 1999. "Exchange Rate Choices," Harvard Institute of Economic Research Working Papers 1877, Harvard - Institute of Economic Research.
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