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EXCHANGE RATE REGIME AND MONETARY POLICY INDEPENDENCE IN EAST ASIA
Author(s) -
Kim Chang Jin,
Lee JongWha
Publication year - 2008
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/j.1468-0106.2008.00394.x
Subject(s) - economics , exchange rate flexibility , independence (probability theory) , monetary policy , interest rate , exchange rate , exchange rate regime , flexibility (engineering) , east asia , context (archaeology) , monetary economics , international economics , macroeconomics , geography , china , statistics , mathematics , management , archaeology
. This paper investigates whether the choice of exchange rate regimes influences the sensitivity of domestic interest rates to international interest rates. We empirically analyse this issue in the context of East Asian economies by employing a regime switching model. We find that the sensitivity of local interest rates to international interest rates declined in Korea and Thailand after they adopted floating exchange rate regimes. We also find that Japan, with a floating exchange regime, has greater independence in monetary policy than a pegged economy such as Hong Kong. These empirical findings suggest that exchange rate flexibility provides greater monetary independence.