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

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  • Tony Cavoli

    () (School of Economics, University of Adelaide, Australia)

  • Ramkishen Rajan

    () (School of Economics, University of Adelaide, Australia)

Abstract

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.

Suggested Citation

  • Tony Cavoli & Ramkishen Rajan, 2003. "Exchange Rate Arrangements for East Asia Post-Crisis: Examining the Case for Open Economy Inflation Targeting," Centre for International Economic Studies Working Papers 2003-10, University of Adelaide, Centre for International Economic Studies.
  • Handle: RePEc:adl:cieswp:2003-10
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    Cited by:

    1. repec:taf:rjapxx:v:11:y:2005:i:1:p:1-34 is not listed on IDEAS
    2. Peter Wilson & Henry Ng Shang Ren, 2008. "The Choice Of Exchange Rate Regime And The Volatility Of Exchange Rates Before And After The Asian Crisis: A Counterfactual Analysis ," Australian Economic Papers, Wiley Blackwell, vol. 47(1), pages 92-114, March.
    3. Peter Wilson & Henry Ng Shang Ren, 2006. "Managing Exchange Rate Volatility: A Comparative Counterfactual Analysis of Singapore 1994 to 2003," SCAPE Policy Research Working Paper Series 0608, National University of Singapore, Department of Economics, SCAPE.
    4. Peter Wilson & Henry Ng Shang Ren, 2006. "Managing Exchange Rate Volatility : A Comparative Counterfactual Analysis Of Singapore 1994 To 2003," Macroeconomics Working Papers 22584, East Asian Bureau of Economic Research.

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