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Time to Exchange the Exchange‐Rate Regime: Are Hard Pegs the Best Option for Low‐Income Countries?
Author(s) -
Harrigan Jane
Publication year - 2006
Publication title -
development policy review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.671
H-Index - 61
eISSN - 1467-7679
pISSN - 0950-6764
DOI - 10.1111/j.1467-7679.2006.00322.x
Subject(s) - economics , exchange rate , exchange rate regime , currency , monetary economics , inflation (cosmology) , international economics , odds , orthodoxy , interest rate parity , currency substitution , vulnerability (computing) , foreign exchange risk , floating exchange rate , medicine , physics , logistic regression , computer security , archaeology , theoretical physics , computer science , history
This paper revisits the debate over the most appropriate exchange‐rate regime for low‐income countries. The debate revolves around: the effect of the exchange‐rate regime on macroeconomic management, particularly inflation; the links between the exchange‐rate regime and vulnerability to crisis (often in the form of twin banking and currency crises); and the effect on international trade and competitiveness. The theoretical and empirical literature and the views of international organisations are reviewed. It is concluded that a hard peg might constitute the most appropriate regime but this is contingent on a number of important preconditions. This view, supported by recent empirical research, is shown to be at odds with the current orthodoxy of international organisations such as the IMF.