Choices of optimal monetary policy instruments under the floating and the basket-peg regimes

Naoyuki Yoshino, Sahoko Kaji, Tamon Asonuma

Research output: Contribution to journalArticle

10 Citations (Scopus)

Abstract

This paper determines whether adopting the basket-peg rather than the floating regime is optimal for emerging market countries. Under the basket-peg regime, there is a trade-off between practical usefulness and welfare losses associated with capital movements across countries. We develop a dynamic stochastic general equilibrium model for small open economies to derive a simple basket weight rule. Although this is suboptimal, we find it practical and easy to implement. With calibration using Singaporean and Thai data for 1997Q3-2006Q2 and comparison among cumulative losses associated with the policy instrument rules, we show that a commitment to the basket weight rule is superior to other instrument rules under the floating regime for small, open emerging market countries like Singapore and Thailand.

Original languageEnglish
Article number1250024
JournalSingapore Economic Review
Volume57
Issue number4
DOIs
Publication statusPublished - 2012 Dec 1

Keywords

  • Basket-peg regime
  • exchange rate regime
  • monetary policy instruments
  • small open economy

ASJC Scopus subject areas

  • Economics and Econometrics

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