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Real Exchange Rate Volatility and the Choice of Regimes in Emerging Markets

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Abstract

Traditional models of the choice of exchange rate regimes ignore the destabilizing effects of sharp and unanticipated exchange rate movements. Recent research, however, has shown that these movements have real costs in emerging markets owing to the dollarization of liabilities. This paper evaluates the performance of an emerging market economy under a credibly fixed-rate, a collapsing fixed-rate, and a flexible-rate regime using a speculative attack model that takes into account the real effects of unanticipated movements in exchange rates. The model is applied to South Korea to determine the dominant exchange rate regime.

Suggested Citation

  • Terence D.Agbeyegbe & Patrick N. Osakwe, 2004. "Real Exchange Rate Volatility and the Choice of Regimes in Emerging Markets," Economics Working Paper Archive at Hunter College 404, Hunter College Department of Economics, revised 2004.
  • Handle: RePEc:htr:hcecon:404
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    Cited by:

    1. Rodolfo Cermeño & María Eugenia Sanin, 2015. "Are Flexible Exchange Rate Regimes more Volatile? Panel GARCH Evidence for the G7 and Latin America," Review of Development Economics, Wiley Blackwell, vol. 19(2), pages 297-308, May.

    More about this item

    Keywords

    Exchange rate regimes; Output volatility; Dollarization; South Korea;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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