Dynamic Effect of Change in Exchange Rate System -From the Fixed Exchange Rate Regime to the Basket-peg or Floating Regime

Naoyuki Yoshino (yoshino.a7@keio.jp), Sahoko Kaji and Tamon Asonuma
Additional contact information
Sahoko Kaji: Department of Economics, Keio University

No 2011-026, Keio/Kyoto Joint Global COE Discussion Paper Series from Keio/Kyoto Joint Global COE Program

Abstract: We quantify dynamic effect of shifts of exchange rate system from the dollar-peg to the basket- peg or floating and obtain transition paths for the shifts, based on a dynamic small open-economy model. We find that a small open country will be better off shifting to the basket-peg or floating regime than maintaining the dollar-peg regime with capital control, in the long-run. Furthermore, because of welfare costs associated with volatility in nominal interest rates, the longer the transition period, the more benefits a country gains from shifting suddenly to the basket-peg from the dollar- peg regime rather than proceeding gradually. Thidly, focusing on sudden shifts to desired regimes, welfare gain of the country is higher under a shift to the basket-peg if the exchagne rate fluctuates remarkably. Lastly, concerning with shifting to the managed floating, it is less attractive to adopt compared with shifting to the basket-peg as intervening to maintain the exchange rate for certain periods leads to higher losses as the authority lacks monetary policy autonomy..

Pages: 38 pages
Date: 2011-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://ies.keio.ac.jp/old_project/old/gcoe-econbus/pdf/dp/DP2011-026.pdf (application/pdf)

Related works:
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:kei:dpaper:2011-026

Access Statistics for this paper

More papers in Keio/Kyoto Joint Global COE Discussion Paper Series from Keio/Kyoto Joint Global COE Program Contact information at EDIRC.
Bibliographic data for series maintained by Global COE Program Office (kei_ken_office@adst.keio.ac.jp).