Exchange Rate Regime and Monetary Policy Independence in East Asia

16 Pages Posted: 23 Apr 2008

See all articles by Chang Jin Kim

Chang Jin Kim

affiliation not provided to SSRN

Jong-Wha Lee

Korea University

Abstract

This paper investigates whether the choice of exchange rate regimes influences the sensitivity of domestic interest rates to international interest rates. We empirically analyse this issue in the context of East Asian economies by employing a regime switching model. We find that the sensitivity of local interest rates to international interest rates declined in Korea and Thailand after they adopted floating exchange rate regimes. We also find that Japan, with a floating exchange regime, has greater independence in monetary policy than a pegged economy such as Hong Kong. These empirical findings suggest that exchange rate flexibility provides greater monetary independence.

Suggested Citation

Kim, Chang Jin and Lee, Jong-Wha, Exchange Rate Regime and Monetary Policy Independence in East Asia. Pacific Economic Review, Vol. 13, Issue 2, pp. 155-170, May 2008. Available at SSRN: https://ssrn.com/abstract=1124205 or http://dx.doi.org/10.1111/j.1468-0106.2008.00394.x

Chang Jin Kim (Contact Author)

affiliation not provided to SSRN

No Address Available

Jong-Wha Lee

Korea University ( email )

Anam-dong, Sungbuk-Ku
Dept. of Economics
Seoul, 136-701
82-2-3290-2216 (Phone)
82-2-928-4948 (Fax)

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