Malović, Marko (2007) Exchange Rate Regimes and Monetary Policies in Emerging Markets: A Showdown for Few Theoretical Misconceptions. Economic analysis, 40 (1). pp. 17-28. ISSN 0013-3213
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Abstract
The purpose of this paper is to challenge couple of dangerous theoretical misconceptions
in open‐economy macro, namely, in respect to desirability or sustainability of available exchange rate regimes
and inflation targeting framework and their mutual compatibility in small open economies with incomplete
(emerging) markets.
First of all, we dismiss the ruling »two corner solution« as dogma in scientific disguise. Furthermore,
all the benefits of more flexible intermediate regimes (sliding currency bands) as well as empirical support of
their wellbeing have been put forward.
As to the monetary policies, majority of transition countries recognised superiority of inflation targeting
over alternative monetary concepts. However, until very recently some emerging market economies
failed to realize the benefits of full‐fledged ‐let alone flexible‐ inflation targeting. In what follows, the article
counters another theoretical dogma: that inflation targeting in emerging market economies must go hand in
hand with fully flexible exchange rate regime.
Having said that, and again contrary to the mainstream literature in the field, paper exposes some serious
weaknesses of the so‐called dirty (or managed) floating as an intermediate regime: in particular, its
potential sub optimality in practice and its hidden incompatibility with widespread inflation targeting
strategies.
Paper concludes by reiterating the inevitability of close relationship between inflation targeting and
exchange rate targeting and hence suggests several possible reaction functions for the monetary authorities
in emerging markets among those already laid out in the related literature.
| Item Type: | Article |
|---|---|
| Additional Information: | COBISS.ID=512081250 |
| Uncontrolled Keywords: | «Two‐Corner Solution», Crawling/Monitoring Bands, «Dirty Float», Flexible Inflation Targeting, (Un)Sterilized Interventions, Small Open Economy, Emerging Markets, «BBC» Plus. |
| Research Department: | ?? H1 ?? |
| Depositing User: | Mrs Aleksandra Bradic-Martinovic |
| Date Deposited: | 27 Jan 2016 20:00 |
| Last Modified: | 04 Sep 2018 11:27 |
| URI: | http://35.240.28.64/id/eprint/278 |
| Author Links: |
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