EconPapers    
Economics at your fingertips  
 

A Proposed Monetary Regime for Small Commodity Exporters: Peg the Export Price ('PEP')

Jeffrey Frankel ()

International Finance, 2003, vol. 6, issue 1, 61-88

Abstract: On the one hand, the big selling points of floating exchange rates--monetary independence and accommodation of terms of trade shocks--have not lived up to their promise. On the other hand, proposals for credible institutional monetary commitments to nominal anchors have each run aground on their own peculiar shoals. Rigid pegs to the dollar are dangerous when the dollar appreciates. Money targeting does not work when there is a velocity shock. CPI targeting is not viable when there is a large import price shock. And the gold standard fails when there are large fluctuations in the world gold market. This paper advances a new proposal called PEP: peg the export price. Most applicable for countries that are specialized in the production of a particular mineral or agricultural product, the proposal calls on them to commit to fix the price of that commodity in terms of domestic currency. A series of simulations shows how such a proposal would have worked for oil producers over the period 1970-2000. The paths of real oil prices, exports, and debt are simulated under alternative regimes. An illustrative finding is that countries that suffered a declining world market in oil or other export commodities in the late 1990s would under the PEP proposal have automatically experienced a depreciation and a boost to exports when it was most needed. The argument for PEP is that it simultaneously delivers automatic accommodation to terms of trade shocks, as floating exchange rates are supposed to do, while retaining the credibility-enhancing advantages of a nominal anchor, as dollar pegs are supposed to do. Copyright 2003 by Blackwell Publishers Ltd.

Date: 2003
References: Add references at CitEc
Citations: View citations in EconPapers (29) Track citations by RSS feed

Downloads: (external link)
http://www.blackwell-synergy.com/servlet/useragent ... &year=2003&part=null link to full text (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: A Proposed Monetary Regime for Small Commodity-Exporters: Peg the Export Price ("PEP") (2003) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:intfin:v:6:y:2003:i:1:p:61-88

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=1367-0271

Access Statistics for this article

International Finance is currently edited by Benn Steil

More articles in International Finance from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().

 
Page updated 2019-10-08
Handle: RePEc:bla:intfin:v:6:y:2003:i:1:p:61-88