IDEAS home Printed from https://ideas.repec.org/p/ucb/calbcd/c94-036.html
   My bibliography  Save this paper

Monetary Regime Choices for a Semi-Open Country

Author

Listed:
  • Jeffrey A. Frankel.

Abstract

This paper considers regime choices facing relatively small, trade-oriented, financially liberalizing, rapidly growing countries such as the East Asian NICs. The classic question of fixed versus flexible exchange rates is considered first. Of the many factors that determine whether the advantages of fixed rates justify the loss of monetary independence, all depend on the openness of the country. One example is the advantage that stable exchange rates promote trade; the magnitude of this effect is estimated in this paper. Another example is the advantage that a fixed exchange rate can serve as a nominal anchor to monetary policy. The second half of the paper reviews the recent literature on monetary rules versus discretion, and then considers four alternative candidates for the nominal anchor for monetary policy: the money supply, nominal GNP, price level, and exchange rate. It is argued that nominal GNP dominates the money supply in general, and dominates the other two candidates under certain conditions.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Jeffrey A. Frankel., 1994. "Monetary Regime Choices for a Semi-Open Country," Center for International and Development Economics Research (CIDER) Working Papers C94-036, University of California at Berkeley.
  • Handle: RePEc:ucb:calbcd:c94-036
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hutchison, Michael & Judd, John P, 1992. "Central Bank Secrecy and Money Surprises: International Evidence," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 135-145, February.
    2. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
    3. Bardhan, Pranab, 1996. "Disparity in wages but not in returns to capital between rich and poor countries," Journal of Development Economics, Elsevier, vol. 49(1), pages 257-270, April.
    4. Eichengreen, Barry & Bayoumi, Tamim, 1994. "The political economy of fiscal restrictions: Implications for Europe from the United States," European Economic Review, Elsevier, vol. 38(3-4), pages 783-791, April.
    5. Robert J. Barro, 1991. "A Cross-Country Study of Growth, Saving, and Government," NBER Chapters, in: National Saving and Economic Performance, pages 271-304, National Bureau of Economic Research, Inc.
    6. Eichengreen, Barry, 1993. "A Marshall Plan for the East: Options for 1993," Center for International and Development Economics Research (CIDER) Working Papers 233185, University of California-Berkeley, Department of Economics.
    7. Jeffrey A. Frankel, 1993. "Is Japan Creating a Yen Bloc in East Asia and the Pacific?," NBER Chapters, in: Regionalism and Rivalry: Japan and the United States in Pacific Asia, pages 53-88, National Bureau of Economic Research, Inc.
    8. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
    9. Bayoumi, Tamim & Eichengreen, Barry, 1994. "Macroeconomic Adjustment under Bretton Woods and the Post-Bretton-Woods Float: An Impulse-Response Analysis," Economic Journal, Royal Economic Society, vol. 104(425), pages 813-827, July.
    10. Frankel, Jeffrey A. & Wei, Shang-Jin, 1993. "Emerging Currency Blocs," Center for International and Development Economics Research (CIDER) Working Papers 233209, University of California-Berkeley, Department of Economics.
    11. Jeffrey A. Frankel, 1997. "Sterilization of money inflows: Difficult (Calvo) or Easy (Reisen)?," Estudios de Economia, University of Chile, Department of Economics, vol. 24(2 Year 19), pages 263-285, December.
    12. Maurice Obstfeld., 1993. "Model Trending Real Exchange Rates," Center for International and Development Economics Research (CIDER) Working Papers C93-011, University of California at Berkeley.
    13. Rudiger Dornbusch & Sebastian Edwards, 1991. "The Macroeconomics of Populism in Latin America," NBER Books, National Bureau of Economic Research, Inc, number dorn91-1, May.
    14. Barry Eichengreen., 1992. "The Political Economy of Fiscal Policy After EMU," Center for International and Development Economics Research (CIDER) Working Papers C92-004, University of California at Berkeley.
    15. Menzie Chinn & Jeffrey Frankel, 1991. "Patterns in Exchange Rate Forecasts for 25 Currencies," NBER Working Papers 3807, National Bureau of Economic Research, Inc.
    16. Barry Eichengreen., 1993. "The Crisis in the EMS and the Transition to EMU: An Interim Assessment," Center for International and Development Economics Research (CIDER) Working Papers C93-022, University of California at Berkeley.
    17. Barry Eichengreen., 1993. "Prerequisites for International Monetary Stability," Center for International and Development Economics Research (CIDER) Working Papers C93-018, University of California at Berkeley.
    18. Takagi, Shinji, 1988. "A basket peg policy: Operational issues for developing countries," World Development, Elsevier, vol. 16(2), pages 271-279, February.
    19. Alessandra Casella, 1992. "Arbitration in International Trade," NBER Working Papers 4136, National Bureau of Economic Research, Inc.
    20. Frankel, Jeffrey, 1993. "Three Comments on Exchange Rate Stabilization and European Monetary Union," Center for International and Development Economics Research (CIDER) Working Papers 233192, University of California-Berkeley, Department of Economics.
    21. Hooper, Peter & Kohlhagen, Steven W., 1978. "The effect of exchange rate uncertainty on the prices and volume of international trade," Journal of International Economics, Elsevier, vol. 8(4), pages 483-511, November.
    22. Eichengreen, Barry & Simmons, Beth, 1993. "International Economics and Domestic Politics: Notes on the 1920s," Center for International and Development Economics Research (CIDER) Working Papers 233212, University of California-Berkeley, Department of Economics.
    23. Shantayanan Devarajan & Dani Rodrik, 1991. "Do the Benefits of Fixed Exchange Rates Outweigh Their Costs? The Franc Zone in Africa," NBER Working Papers 3727, National Bureau of Economic Research, Inc.
    24. Barry Eichengreen., 1993. "Thinking about Migration: Notes on European Migration Pressures at the Dawn of the Next Millennium," Center for International and Development Economics Research (CIDER) Working Papers C93-019, University of California at Berkeley.
    25. Frankel, Jeffrey A., 1993. "Foreign Exchange Policy, Monetary Policy and Capital Market Liberalization in Korea," Center for International and Development Economics Research (CIDER) Working Papers 233181, University of California-Berkeley, Department of Economics.
    26. Jeffrey A. Frankel and Norbert Funke., 1994. "A Two-Country Analysis of International Targeting of Nominal GNP," Center for International and Development Economics Research (CIDER) Working Papers C94-035, University of California at Berkeley.
    27. John F. O. Bilson & Richard C. Marston, 1984. "Exchange Rate Theory and Practice," NBER Books, National Bureau of Economic Research, Inc, number bils84-1, May.
    28. Jeff Frankel, Steve Phillips, and Menzie Chinn., 1992. "Financial and Currency Integration in the European Monetary System: The Statistical Record," Center for International and Development Economics Research (CIDER) Working Papers C92-005, University of California at Berkeley.
    29. Takatoshi Ito, 1989. "Is the Bank of Japan a Closet Monetarist? Monetary Targeting in Japan, 1978-1988," NBER Working Papers 2879, National Bureau of Economic Research, Inc.
    30. Bardhan, Pranab, 1993. "Rational Fools and Cooperation in a Poor Hydraulic Economy," Center for International and Development Economics Research (CIDER) Working Papers 233195, University of California-Berkeley, Department of Economics.
    31. Jeffrey A. Frankel & Shang-Jin Wei, 1994. "Yen Bloc or Dollar Bloc? Exchange Rate Policies of the East Asian Economies," NBER Chapters, in: Macroeconomic Linkage: Savings, Exchange Rates, and Capital Flows, pages 295-333, National Bureau of Economic Research, Inc.
    32. Helmut Reisen & Axel Trotsenburg, 1988. "Should the Asian NICs peg to the yen?," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 23(4), pages 172-177, July.
    33. Eichengreen, Barry, 1993. "International Monetary Arrangements for the 21st Century," Center for International and Development Economics Research (CIDER) Working Papers 233202, University of California-Berkeley, Department of Economics.
    34. Pranab Bardhan, 1992. "The Implications of New Growth Theory for Trade and Development: An Overview," Boston University - Institute for Economic Development 27, Boston University, Institute for Economic Development.
    35. Rudiger Dornbusch & Sebastian Edwards, 1991. "The Macroeconomics of Populism," NBER Chapters, in: The Macroeconomics of Populism in Latin America, pages 7-13, National Bureau of Economic Research, Inc.
    36. David Romer, 1993. "Openness and Inflation: Theory and Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 108(4), pages 869-903.
    37. Sung Y. Kwack, 1992. "Monetary control, sterilization, and exchange rate policy: Korea during the period of current account surpluses, 1986-1990," Proceedings, Federal Reserve Bank of San Francisco, issue Sep.
    38. Frankel, Jeffrey A., 1991. "The Stabilizing Properties of a Nominal GNP Rule in an Open Economy," Department of Economics, Working Paper Series qt7xz9d77c, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    39. Tamim Bayoumi and Barry Eichengreen., 1993. "One Money or Many? On Analyzing the Prospects for Monetary Unification in Various Parts of the World," Center for International and Development Economics Research (CIDER) Working Papers C93-030, University of California at Berkeley.
    40. Eichengreen, Barry, 1994. "Deja Vu All Over Again: Lessons from the Gold Standard for European Monetary Unification," Center for International and Development Economics Research (CIDER) Working Papers 233215, University of California-Berkeley, Department of Economics.
    41. Richard C. Marston, 1984. "Exchange Rate Unions as an Alternative to Flexible Rates: The Effects of Real and Monetary Disturbances," NBER Chapters, in: Exchange Rate Theory and Practice, pages 407-442, National Bureau of Economic Research, Inc.
    42. Maurice Obstfeld, 1993. "Are Industrial-Country Consumption Risks Globally Diversified?," NBER Working Papers 4308, National Bureau of Economic Research, Inc.
    43. Rudiger Dornbusch & Sebastian Edwards, 1991. "Introduction to "The Macroeconomics of Populism in Latin America"," NBER Chapters, in: The Macroeconomics of Populism in Latin America, pages 1-4, National Bureau of Economic Research, Inc.
    44. Taylor, John B., 1985. "What would nominal GNP targetting do to the business cycle?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 22(1), pages 61-84, January.
    45. Bean, Charles R, 1983. "Targeting Nominal Income: An Appraisal," Economic Journal, Royal Economic Society, vol. 93(372), pages 806-819, December.
    46. James Tobin, 1980. "Stabilization Policy Ten Years After," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(1, Tenth ), pages 19-90.
    47. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Unioni monetarie e integrazione economica
      by Alberto Bagnai in Goofynomics on 2016-03-28 14:23:00

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Barry Eichengreen., 1994. "History and Reform of the International Monetary System," Center for International and Development Economics Research (CIDER) Working Papers C94-041, University of California at Berkeley.
    2. Jorge Carrera & Diego Bastourre, 2004. "Could the Exchange Rate Regime Reduce Macroeconomic Volatility?," Econometric Society 2004 Latin American Meetings 309, Econometric Society.
    3. Cristina Fernández & Andrés González G., 2000. "Integración y vulnerabilidad externa en Colombia," Coyuntura Económica, Fedesarrollo, December.
    4. Pranab Bardhan, 1998. "The Contributions of Endogenous Growth Theory to the Analysis of Development Problems: An Assessment," Palgrave Macmillan Books, in: Fabrizio Coricelli & Massimo di Matteo & Frank Hahn (ed.), New Theories in Growth and Development, chapter 5, pages 97-110, Palgrave Macmillan.
    5. Eichengreen, Barry & Wyplosz, Charles, 1995. "What Do Currency Crises Tell Us About the Future of the International Monetary System?," Center for International and Development Economics Research (CIDER) Working Papers 233418, University of California-Berkeley, Department of Economics.
    6. Domac, Ilker & Peters, Kyle & Yuzefovich, Yevgeny, 2001. "Does the exchange rate regime affect macroeconomic performance : evidence from transition economics," Policy Research Working Paper Series 2642, The World Bank.
    7. Sebastian Edwards, 1996. "The Determinants of the Choice between Fixed and Flexible Exchange-Rate Regimes," NBER Working Papers 5756, National Bureau of Economic Research, Inc.
    8. Yap, Josef T. & Reyes, Celia M., 1993. "Money and Prices in the Philippines, 1981-1992: A Cointegration Analysis," Philippine Journal of Development JPD 1993 Vol. XX No. 1-c, Philippine Institute for Development Studies.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jeffrey A. Frankel and Norbert Funke., 1994. "A Two-Country Analysis of International Targeting of Nominal GNP," Center for International and Development Economics Research (CIDER) Working Papers C94-035, University of California at Berkeley.
    2. Stein, Ernesto H. & Streb, Jorge M., 1998. "Political stabilization cycles in high-inflation economies," Journal of Development Economics, Elsevier, vol. 56(1), pages 159-180, June.
    3. Maurice Obstfeld, 1993. "International Capital Mobility in the 1990s," NBER Working Papers 4534, National Bureau of Economic Research, Inc.
    4. Pranab Bardhan, 1998. "The Contributions of Endogenous Growth Theory to the Analysis of Development Problems: An Assessment," Palgrave Macmillan Books, in: Fabrizio Coricelli & Massimo di Matteo & Frank Hahn (ed.), New Theories in Growth and Development, chapter 5, pages 97-110, Palgrave Macmillan.
    5. Eichengreen, Barry & Flandreau, Marc, 1994. "The Geography of the Gold Standard," Center for International and Development Economics Research (CIDER) Working Papers 233393, University of California-Berkeley, Department of Economics.
    6. Eichengreen, Barry, 1994. "Deja Vu All Over Again: Lessons from the Gold Standard for European Monetary Unification," Center for International and Development Economics Research (CIDER) Working Papers 233215, University of California-Berkeley, Department of Economics.
    7. Jeffrey A. Frankel & Shang-Jin Wei, 1993. "Emerging Currency Blocs," NBER Working Papers 4335, National Bureau of Economic Research, Inc.
    8. Barry Eichengreen., 1994. "History and Reform of the International Monetary System," Center for International and Development Economics Research (CIDER) Working Papers C94-041, University of California at Berkeley.
    9. Eichengreen, Barry, 1994. "The Bretton Woods System: Paradise Lost?," Center for International and Development Economics Research (CIDER) Working Papers 233394, University of California-Berkeley, Department of Economics.
    10. Eichengreen, Barry & Tobin, James & Wyplosz, Charles, 1995. "Two Cases for Sand in the Wheels of International Finance," Economic Journal, Royal Economic Society, vol. 105(428), pages 162-172, January.
    11. Eichengreen, Barry & Rose, Andrew K & Wyplosz, Charles, 1994. "Speculative Attacks on Pegged Exchange Rates: An Empirical Exploration with Special Reference to the European Monetary System," CEPR Discussion Papers 1060, C.E.P.R. Discussion Papers.
    12. Eichengreen, Barry & Simmons, Beth, 1993. "International Economics and Domestic Politics: Notes on the 1920s," Center for International and Development Economics Research (CIDER) Working Papers 233212, University of California-Berkeley, Department of Economics.
    13. Barry Eichengreen., 1993. "International Monetary Arrangements for the 21st Century," Center for International and Development Economics Research (CIDER) Working Papers C93-021, University of California at Berkeley.
    14. Eichengreen, Barry, 1993. "The Crisis in the EMS and the Transition to EMU: An Interim Assessment," Center for International and Development Economics Research (CIDER) Working Papers 233203, University of California-Berkeley, Department of Economics.
    15. Eichengreen, Barry, 1995. "Sterling in Decline Again: The 1931 and 1992 Crises Compared," Center for International and Development Economics Research (CIDER) Working Papers 233404, University of California-Berkeley, Department of Economics.
    16. Frankel, Jeffrey A. & Rose, Andrew K., 1996. "A panel project on purchasing power parity: Mean reversion within and between countries," Journal of International Economics, Elsevier, vol. 40(1-2), pages 209-224, February.
    17. Jeffrey A. Frankel & Andrew K. Rose, 1994. "A Survey of Empirical Research on Nominal Exchange Rates," NBER Working Papers 4865, National Bureau of Economic Research, Inc.
    18. Eichengreen, Barry & Wyplosz, Charles, 1995. "What Do Currency Crises Tell Us About the Future of the International Monetary System?," Center for International and Development Economics Research (CIDER) Working Papers 233418, University of California-Berkeley, Department of Economics.
    19. Eichengreen, Barry, 1993. "Prerequisites for International Monetary Stability," Center for International and Development Economics Research (CIDER) Working Papers 233199, University of California-Berkeley, Department of Economics.
    20. Jeffrey Frankel and Charles Wyplosz., 1995. "A Proposal to Introduce the ECU First in the East," Center for International and Development Economics Research (CIDER) Working Papers C95-055, University of California at Berkeley.

    More about this item

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ucb:calbcd:c94-036. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christopher F. Baum (email available below). General contact details of provider: https://edirc.repec.org/data/debrkus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.