Discussion Topic 1999
Central Banking Seminar
October 18-29, 1999
The Choice of Exchange Rate Regime
Focus
In the aftermath of the Asian financial crisis and Brazil’s devaluation of the real, academics and policy makers have expressed renewed interest in mechanisms to manage exchange rate volatility. Some proposals, such as currency boards or dollarization, have taken on the aura of a facile and direct measure with the potential to overcome the financial instability accompanying external adjustment. Other commentators point out that if financial and structural reforms sufficient to mitigate the domestic costs of such stabilization mechanisms were to be put in place, then the peg or dollarization would not be necessary in the first place. To review the range of economic and financial factors underlying this timely policy issue, Seminar participants will discuss a sample of current academic and policy writings on the choice of exchange rate regime. In the discussion groups, participants will be asked to relate their individual country’s experiences regarding exchange rate volatility, stabilization, and macroeconomic performance and to describe the challenges encountered under their central bank’s current policy regime.
Lecture outline and recommended reading
Session 1: The international monetary system and the role of exchange rates
Lecturer: Paolo Pesenti
Krugman, Paul R. and Maurice Obstfeld. 1997. International Economics: Theory and Policy, Fourth Edition, Addison Wesley, New York, chapters 18 and 19, pp. 535-608.
Economic Report of the President. 1999. The Evolution and Reform of the International Financial System, chapter 7, pp. 267-305.
Supplementary reading:
Clarida, Richard H. 1999. "G3 Exchange Rate Relationships: A Recap of the Record and a Review of Proposals for Change." Mimeo, April 20.
Cooper, Richard N. 1999. "Exchange Rate Choices." Harvard Institute of Economic Research, Discussion Paper No. 1877, July.
Session 2: European efforts to address exchange rate volatility: EMS and EMU
Lecturer: Eric vanWincoop
Supplementary reading:
Corsetti, Giancarlo and Paolo Pesenti. 1999. "Stability, asymmetry, and discontinuity: the outset of European Monetary Union." Forthcoming in Brookings Papers on Economic Activity, December.
Obstfeld, Maurice and Giovanni Peri. 1998. "Regional Nonadjustment and Fiscal Policy: Lessons for EMU." NBER Working Paper No. W6431, February.
Session 3: Speculative crises in emerging markets
Lecturer: Cedric Tille
Neely, Michelle Clark. 1999. "Paper Tigers? How the Asian Economies Lost Their Bite." The Regional Economist, Federal Reserve Bank of St. Louis, January.
Corsetti, Giancarlo, Paolo Pesenti and Nouriel Roubini. 1999. "What Caused the Asian Currency and Financial Crisis?" (revised) April. Available as a PDF file on Nouriel Ruobini’s Asia web page:
Sachs, Jeffrey D., Aaron Tornell and Andres Velasco. 1996. "Financial Crises in Emerging Markets: The Lessons from 1995," Brookings Papers on Economic Activity, no. 1, pp. 147-215.
Lane, Timothy, Atish Ghosh, Javier Hamann, Steven Phillips, Marianne Schulze-Ghattas, and Tsidi Tsikata. 1999. "IMF-Supported Programs in Indonesia, Korea and Thailand: A Preliminary Assessment." IMF Occasional Paper no. 178.
Supplementary reading:
Several relevant readings are available on Nouriel Ruobini’s Asia web page.
Radelet, Stephen and Jeffrey Sachs. 1999. "What Have We Learned So Far from the Asian Financial Crisis?" Mimeo, January 4.
Chang, Roberto and Andres Velasco. 1998. "The Asian Liquidity Crisis." NBER Working Paper No. W6796, November.
Kaminsky, Graciela L. and Carmen M. Reinhart. 1999. "On Crises, Contagion, and Confusion." Mimeo, June 8.
Session 4: The current debate: capital controls, currency boards, and dollarization
Lecturer: Linda Goldberg
Economic Report of the President. 1999. Capital Flows to the Global Economy, chapter 6, pp. 219-266.
Calvo, Guillermo. 1999. "On Dollarization." Mimeo, April 20.
Supplementary reading:
Summers, Lawrence. 1999. Testimony before the Joint Hearing of the Subcommittee on Economic Policy and the Subcommittee on International Trade and Finance, Committee on Banking, Housing, and Urban Affairs, United State Senate, April 22.
Dornbush, Rudi. 1999. "The Target Zone Controversy." Mimeo, February.
Rogoff, Kenneth. 1999. "International Institutions for Reducing Global Financial Instability." NBER Working Paper No. W7265, July.
