Dynamic Analysis of Exchange Rate Regimes: Policy Implications for Emerging Countries in Asia

21 Pages Posted: 30 Oct 2014

See all articles by Naoyuki Yoshino

Naoyuki Yoshino

Asian Development Bank Institute

Sahoko Kaji

Keio University

Tamon Asonuma

International Monetary Fund Research Department

Date Written: October 30, 2014

Abstract

This paper discusses desirable exchange rate regimes and how countries can shift from their current regimes to these regimes over the medium term. We demonstrate the superiority of a basket-peg regime with the basket weight rule over a floating regime with the interest rate rule or the money supply rule in small open economies, during periods when volatility of exchange rates is moderate. Countries which currently have fixed exchange rates would be better moving toward either a basket-peg or a floating regime over the medium term. A shift to a basket-peg regime is preferred when exchange rate fluctuations are large.

Keywords: exchange rate regimes, basket-peg, floating regime, interest rate rules

JEL Classification: E42, F33, F41, F42

Suggested Citation

Yoshino, Naoyuki and Kaji, Sahoko and Asonuma, Tamon, Dynamic Analysis of Exchange Rate Regimes: Policy Implications for Emerging Countries in Asia (October 30, 2014). ADBI Working Paper 502. Available at SSRN: https://ssrn.com/abstract=2516662 or http://dx.doi.org/10.2139/ssrn.2516662

Naoyuki Yoshino (Contact Author)

Asian Development Bank Institute ( email )

Kasumigaseki Building 8F
3-2-5, Kasumigaseki, Chiyoda-ku
Tokyo, 100-6008
Japan

Sahoko Kaji

Keio University ( email )

2-15-45 Mita
Minato-ku
Tokyo, 108-8345
Japan

Tamon Asonuma

International Monetary Fund Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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