Evolution of Exchange Rate Regimes

Abstract

This paper studies issues relating to the evolution of exchange rate regimes. Empirical regularities concerning the variation over time of real and monetary disturbances and cross-country inflation differentials are first discussed. The paper then develops a model that incorporates these regularities and thereby enables exchange rate regime changes to be viewed as optimal and predictable responses by policymakers to a changing economic environment.

JEL Classification: 4314, 4320