The Mirage of Exchange Rate Regimes for Emerging Market Countries

Journal of Economic Perspectives, Vol. 17, No. 4, Fall 2003

Posted: 13 May 2004

See all articles by Guillermo A. Calvo

Guillermo A. Calvo

Columbia University - School of International & Public Affairs (SIPA); National Bureau of Economic Research (NBER)

Frederic S. Mishkin

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Abstract

This paper argues that much of the debate on choosing an exchange rate regime misses the boat. It begins by discussing the standard theory of choice between exchange rate regimes, and then explores the weaknesses in this theory, especially when it is applied to emerging market economies. It then discusses a range of institutional traits that might predispose a country to favor either fixed or floating rates, and then turns to the converse question of whether the choice of exchange rate regime may favor the development of certain desirable institutional traits. The conclusion from the analysis is that the choice of exchange rate regime is likely to be of second order importance to the development of good fiscal, financial, and monetary institutions in producing macroeconomic success in emerging market countries. This suggests that less attention should be focused on the general question whether a floating or a fixed exchange rate is preferable, and more on these deeper institutional arrangements. A focus on institutional reforms rather than on the exchange rate regime may encourage emerging market countries to be healthier and less prone to the crises that we have seen in recent years.

Suggested Citation

Calvo, Guillermo A. and Mishkin, Frederic S., The Mirage of Exchange Rate Regimes for Emerging Market Countries. Journal of Economic Perspectives, Vol. 17, No. 4, Fall 2003, Available at SSRN: https://ssrn.com/abstract=545462

Guillermo A. Calvo (Contact Author)

Columbia University - School of International & Public Affairs (SIPA) ( email )

420 West 118th Street
New York, NY 10027
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Frederic S. Mishkin

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
716
PlumX Metrics