Dynamic effects of changes in the exchange rate system

Naoyuki Yoshino, Sahoko Kaji, Tamon Asonuma

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

We propose a new dynamic transition analysis on the basis of a small open economy dynamic stochastic general equilibrium model. Our proposed analysis differs from existing static and conventional dynamic analyses in that shifts from a fixed exchange rate regime to a basket peg or a floating regime are explicitly explored.We apply quantitative analysis, using data from the People’s Republic of China and Thailand, and find that both economieswould be better off shifting from a dollar peg to a basket peg or a floating regime over the long run. Furthermore, the longer the transition period, the greater the benefits of shifting to a basket peg regime from a dollar peg regime owing to limited volatility in interest rates. Regarding sudden shifts to a desired regime, the welfare gains are larger under a shift to a basket peg if the exchange rate fluctuates significantly.

Original languageEnglish
Pages (from-to)111-161
Number of pages51
JournalAsian Development Review
Volume33
Issue number1
DOIs
Publication statusPublished - 2016 Mar

Keywords

  • Basket peg
  • Dynamic transition analysis
  • East Asia
  • Exchange rate regime
  • Transition path

ASJC Scopus subject areas

  • Geography, Planning and Development
  • Development

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