Changes in Exchange Rates in Rapidly Developing Countries: by Takatoshi Ito, Anne O. Krueger

By Takatoshi Ito, Anne O. Krueger

The trade cost is an important variable linking a nation's household economic climate to the overseas marketplace. therefore number of an alternate price regime is a critical part within the monetary coverage of constructing nations and a key issue affecting fiscal growth.Historically, so much constructing countries have hired strict trade cost controls and heavy security of household industry-policies now regarded as at odds with sustainable and fascinating charges of monetary development. in contrast, many East Asian countries maintained trade expense regimes designed to accomplish an enticing weather for exports and an "outer-oriented" improvement approach. the outcome has been swift and constant monetary development during the last few decades.Changes in trade premiums in quickly constructing international locations explores the impression of such varied trade keep watch over regimes in either ancient and neighborhood contexts, focusing specific realization on East Asia. This finished, rigorously researched quantity would definitely turn into a typical reference for students and policymakers.

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Additional info for Changes in Exchange Rates in Rapidly Developing Countries: Theory, Practice, and Policy Issues (National Bureau of Economic Research-East Asia Seminar on Economics)

Sample text

In particular, I ask: why do some countries select a flexible exchange rate regime while others choose a pegged regime? I argue that the answer to this question is largely related to the political structure of the country in question. In this paper I develop a formal political economy model to analyze this issue. The model assumes that a fixed exchange rate regime is more credible than a flexible regime. However, if the pegged regime is abandoned-that is, if the authorities decide (or are forced) to devalue-the authorities suffer a significant political cost.

If there is a single-party government, NPC will take the value of one). It is expected that the higher the number of parties in that coalition, the higher the probability of conflict of interest across ministries and thus the higher the reliance on the inflation tax. The third indicator of government weakness is whether the government is a coalition government or a single-party government (COAL). This index takes a value of zero for dictatorships, a value of one for single-party governments, and a value of two for coalition governments.

Finally, many policymakers in developing countries are now rejecting inflation because it hurts growth. Certainly, in countries such as Argentina and Chile, policymakers do not view inflation as being consistent with more employment and growth; on the contrary, one reason for their commitment to achieving a stable price level has been their belief that inflation harms the real economy. To the extent that that belief is pervasive, the basis of the model is undermined: believers in the inefficacy of inflation for achieving real goals would believe there is a positive relationship between low or zero inflation and the real variables they seek, and not a trade-off.

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