Monetary Coordination Involving Developing Countries: The Need for a New Conceptual Framework

Barbara Fritz and Martina Metzger

Chapter 1 in New Issues in Regional Monetary Coordination, 2006, pp 3-25 from Palgrave Macmillan

Abstract: Abstract As the East Asian crisis has impressively shown, sudden U-turns in capital flows and volatile exchange rates must today be identified as major sources of instability, even in a favourable world economic climate. Countries not engaged in a regional monetary coordination arrangement and therefore unilaterally exposed to these instabilities fall back on a combination of monetary and fiscal policies to avert depreciation, and if — as is regrettably too often the case — the struggle is lost, on competitive devaluations. The balance-sheet effects of devaluations and increased domestic interest rates depress domestic income generation and result in a deterioration of public budgets. Moreover, this policy mix has an extremely deleterious impact on regional integration, as the case of Mercosur compellingly indicates.

Keywords: Monetary Policy; Central Bank; Fiscal Policy; Nominal Wage; Currency Union (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-50244-4_1

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DOI: 10.1057/9780230502444_1

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