Dynamic Analysis of the Exchange Rate Regime: Policy Implications for Emerging Countries in E ast A sia

This paper discusses exchange rate policies in E ast A sia. In particular, we explore whether actual policies that have been implemented by E ast A sian countries after the A sian F inancial C risis follow or deviate from theoretically “desirable” policies over the medium and long terms. On theoretical analysis, we show the relative superiority of a basket‐peg regime with the basket weight rule when compared with a floating regime implementing the interest rate rule or money supply rule. For countries that currently adopt a fixed exchange rate regime, they would be better off shifting toward either a basket‐peg or a floating regime over the medium term. A shift to a basket peg is more preferred when compared with a shift to a floating regime when the exchange rate fluctuations are large.