Simwaka, Kisu (2010): Choice of exchange rate regimes for African countries: Fixed or Flexible Exchange rate regimes? Forthcoming in: Perspective on Modern African Currencies
Download (93kB) | Preview
The choice of an appropriate exchange rate regime has been a subject of ongoing debate in international economics. The majority of African countries are small open economies and thus where the choice of the exchange rate regime is an important policy issue. Aside from factors such as interest rates and inflation, the exchange rate is one of the most important determinants of a country’s relative level of economic health. For this reason, exchange rates are among the most watched analyzed and governmentally manipulated economic variables. This paper revisits the debate on the choice of an appropriate exchange-rate regime for African countries. It starts by reviewing literature on the debate of appropriate exchange rate regimes. It then discusses relevant considerations for the choice of the exchange rate regimes for African countries. The debate revolves around the effect of exchange rate on macroeconomic management, particularly inflation and export competitiveness. The paper recommends the conventional peg arrangement as a viable option for the majority of low-income African countries. But this is contingent on a number of important pre-conditions. For middle-income African economies, with relatively developed financial markets and linkages to modern global capital markets, floating arrangements, including the managed floating exchange rate regime, look more promising. In conclusion, the paper cautions that no single exchange rate regime is right for all countries or at all times.
|Item Type:||MPRA Paper|
|Original Title:||Choice of exchange rate regimes for African countries: Fixed or Flexible Exchange rate regimes?|
|English Title:||Choice of exchange rate regimes for African countries: Fixed or Flexible Exchange rate regimes?|
|Keywords:||Exchange rate options, sub-Saharan African countries|
|Subjects:||F - International Economics > F3 - International Finance > F30 - General
F - International Economics > F3 - International Finance > F31 - Foreign Exchange
F - International Economics > F3 - International Finance > F33 - International Monetary Arrangements and Institutions
|Depositing User:||Kisu Simwaka|
|Date Deposited:||08. Jun 2010 21:52|
|Last Modified:||30. Dec 2015 15:43|
Andrew Berg (2000). Exchange Rate Regimes in an Increasingly Integrated World Economy. IMF Occasional Paper 193.
Bird, G. (1979) ‘The Choice of Exchange Rate Regime in Developing Countries’, Philippine Economic Journal 2.
Black, S. W. (1976) ‘Exchange Policies for Less Developed Countries in the World of Floating Rates’, Princeton Essays in International Finance 119.
Bleany, M. and Fielding, D. (2002) ‘Exchange Rate Regimes, Inflation and Output Volatility in Developing Countries’, Journal of Development Economics 68 (1): 233-45.
Bordo, M. D. (2003) Exchange Rate Regime Choice in Historical Perspective. NBER Working Paper 9654. Cambridge, MA: National Bureau of Economic Research.
Calvo, G. A. and Reinhart, C. M. (2000) Fear of Floating. NBER Working Paper 8006. Cambridge, MA: National Bureau of Economic Research.
Crockett, A. D. and Nsouli, Saleh M. (1977) ‘Exchange Rate Policies for Developing Countries’, Journal of Development Studies 13: 125-43.
Dornbusch, R. (2001) Fewer Monies, Better Monies. NBER Working Paper 8324. Cambridge, MA: National Bureau of Economic Research.
Edwards, S. (2001) Exchange Rate Regimes, Capital Flows and Crisis Prevention. NBER Working Paper 8529. Cambridge, MA: National Bureau of Economic Research.
Edwards, S. and Magendzo, I. (2003) A Currency of One’s Own? An Empirical Investigation on Dollarization and Independent Currency Unions. NBER Working Paper 9514. Cambridge, MA: National Bureau of Economic Research.
Edwards, S. and Levy-Yeyati, E. (2003) Flexible Exchange Rates as Shock Absorbers. NBER Working Paper 9867. Cambridge, MA: National Bureau of Economic Research.
Eichengreen, B. (1994) International Monetary Arrangements for the 21st Century. Washington, DC: The Brookings Institution.
Fischer, S. (2001) ‘Exchange Rate Regimes: Is the Bipolar View Correct?’, Journal of Economic Perspectives 15 (2): 3-24.
Frankel, J. A. (1999) No Single Currency Regime is Right for all Countries or at all Times. Princeton Essays in International Finance No. 215. Princeton, NJ: Princeton University Press.
Frankel, J. A. and Rose, A. (2000) Estimating the Effect of Currency Union on Trade and Output. NBER Working Paper 7857. Cambridge, MA: National Bureau of Economic Research.
Frankel, J. A. and Johnson, H. G. (eds) (1976) The Monetary Approach to the Balance of Payments. London: Allen and Unwin. 222 Jane Harrigan
Friedman, M. (1953) ‘The Case for Flexible Exchange Rates’, in Essays in Positive Economics. Chicago: University of Chicago Press.
Ghosh, A., Gulde, M. and Wolf, H. (2003) Exchange Rate Regimes: Choices and Consequences. Cambridge, MA: MIT Press.
Ghosh, A., Gulde, M., Ostry. J, and Wolf, H. (1996), “Does Nominal Exchange rate Regime Matter?” NEBER Working Paper 5874.
Goldstein, M. (1995) The Exchange Rate System and the IMF: A Modest Agenda. Washington, DC: Institute of International Economics.
Grier, K. and Hernandez-Trillo, F. (2003), “The real exchange rate process and its real effects: the case of Mexico and the USA”, Journal of Applied Economics, Volume 7, Number 1
Harrigan, J., Banda, W. and Nixson, F. (2001) ‘The Determinants of Export Performance: Results of a 1997 Survey of Malawian Exporters’, Journal of African Business 2 (3): 33-64.
Harrigan, J (2006) ‘Time to Exchange the Exchange Rate Regime: Are Hard Pegs the Best Options for Low-income’, Development Policy Review 24 (2): 205-223
Husain, A., Mody, A. and Rogoff, K. (2005) ‘Exchange Rate Regime Durability and Performance in Developing Versus Advanced Economies’, Journal of Monetary Economics 52(25): 35-64.
Krugman P. R. and Obstfeld, M. (1994) International Economics: Theory and Policy,3rd edn. Donnelley and Sons. New Jersey: Addison Wesley Longman, Pearson Education.
Ladd, P. (2003) Too Hot to Handle? The Absence of Trade from the PRSPs. London: Christian Aid.
Larrain, F. and Velasco, A. (2001) Exchange Rate Policy in Emerging Market Economies: The Case for Floating. Essays in International Economics No. 224. Princeton, NJ: Princeton University Press.
Levy-Yayati, E. and Sturzenegger, F. (2003) ‘To Float or to Fix: Evidence on the Impact of Exchange Rate Regimes on Growth’, American Economic Review 93 (4): 1173-93.
Lipschitz, L. (1978) ‘Exchange Rate Policies for Developing Countries: Some Simple Arguments for Intervention’, IMF Staff Papers 25, September. Masson, P. R. (2001) ‘Exchange Rate Regime Transitions’, Journal of Development Economics 64 (2): 571-86.
McKinnon, R. and Pill, H. (1999) ‘Exchange Rate Regimes for Emerging Markets: Moral Hazard and International Over-borrowing’, Oxford Economic Review 15: 19-38. Time to Exchange the Exchange-Rate Regime 223
Milner, C. and Zgovu, E. (2003) Export Response to Trade Liberalisation in the Presence of High Trade Costs: Evidence for a Landlocked African Economy. Credit Research Paper 03/04. University of Nottingham, UK: Centre for Research in Economic Development and International Trade.
Mussa, Michael (2007). "IMF Surveillance over China's Exchange Rate Policy", Peterson Institute for International Economics, Washington, DC.
--------, Paul Masson, Alexander Swoboda, Esteban Jadresic, Paulo Mauro, and
Obstfeld, M. (1994) ‘The Logic of Currency Crises’, Cahiers Economiques et Monetaires 43: 189-213.
Obstfeld, M. (1996) ‘Models of Currency Crisis with Self-Fulfilling Features’, European Economic Review 40: 1037-48.
Obstfeld, M. and Rogoff, K. (1995) ‘Mirage of Fixed Exchange Rates’, Journal of Economic Perspectives 9: 73-96. Polak, J. J. (1957) ‘Monetary Analysis of Income Formation’, IMF Staff Papers 6, November.
Quirk, P. J.; Christensen, B. V.; Mo Huh, K. and Sasaki, T. (1987) Floating Exchange Rates in Developing Countries: Experience with Auction and Interbank Markets. Occasional Paper No. 53. Washington, DC: IMF.
Reinhart, C. M. and Rogoff, K. (2004) ‘The Modern History of Exchange Rate Arrangements: A Reinterpretation’, Quarterly Journal of Economics 119 (1): 1-48. Reserve Bank of Malawi (2005) ‘Evolution of Exchange Rate Determination in Malawi:
Rogoff, K. (1999) ‘Perspectives on Exchange Rate Regimes’, in M. Feldstein (ed.), International Capital Flows. Chicago: University of Chicago Press.
Williamson, J. (2000) Emerging Markets: Reviving the Intermediate Option. Washington, DC: Institute of International Economics World Bank, (1994), “Choice of Exchange rate Regimes For Developing Countries,” Africa Region Working Paper Series No.16