Optimal choice of an exchange rate regime: a critical literature review

This paper set out to review the main theories and empirical methods employed in selecting an appropriate exchange rate regime.In order to achieve this, the paper is organized as follows : Section 2 introduces the distinct classifications of exchange regimes(de jure exchange rate regimes versus the facto exchange rate regimes), and the different theoretical approaches which illustrate how an optimal exchange rate regime is determined . Despite their initial popularity, the theoretical considerations have not escaped criticism.Section 3 reviews the criticism of these theories.A conclusion is provided in Section 4

The Choice of the Exchange Policies in the Primary Commodity Exporting Countries: Study of the Competitiveness in Morocco

The purpose of this paper is to estimate the equilibrium real exchange rate and derive the degree of misalignment for the Moroccan Dirham. Our estimate suggest that the  fixed  exchange rate regime adopted by Morocco since 1973 is not responsible for stagnating exports and trade deficit  since the Dirham is close to its equilibrium level. These findings while exonerating the exchange rate from being a cause of low growth and not sufficiently dynamic exports sector, should lead us to consider other factors that could explain the low economic performances. Keywords: real exchange rate misalignment, fixed exchange regime, competitiveness, trade deficit, autoregressive distributed lag (ARDL). Specialization in exports on clothes and textile, dependence on imported capital goods and energy product.

Optimal choice of an exchange rate regime: a critical literature review

This paper set out to review the main theories and empirical methods employed in selecting an appropriate exchange rate regime.In order to achieve this, the paper is organized as follows : Section 2 introduces the distinct classifications of exchange regimes(de jure exchange rate regimes versus the facto exchange rate regimes), and the different theoretical approaches which illustrate how an optimal exchange rate regime is determined . Despite their initial popularity, the theoretical considerations have not escaped criticism.Section 3 reviews the criticism of these theories.A conclusion is provided in Section 4

Exchange Rate Dynamics and Monetary Policy in a Small Open Economy: A DSGE Model

This paper compares alternative monetary policy rules in a small open economy that experiences internal shocks (productivity shocks) and external shocks to terms of trade and the foreign demand. A comparison of the volatility of the macroeconomic variables such as inflation, output, terms of trade, trade balance, investment and exchange rates under the different monetary rules is set to lead to the choice of the optimal exchange rate regime. I will show that these regimes can be ranked in terms of their implied volatility for the considered macroeconomic variables.  A two-country version of the Calvo sticky price model is used to analyze the macroeconomic implications of four alternative monetary policy regimes for a small open economy: domestic inflation targeting, managed float, CPI targeting and an exchange rate peg. The degree of exchange rate pass-through is very important for the assessment of monetary rules. I find that the CPI targeting rule is the best policy (from a macroeconomic stability viewpoint) in an economy that exhibits lagged exchange rate pass-through. With low pass-through, both the domestic and the overall prices respond sluggishly to shocks, and it is more efficient for the monetary authority to target the overall CPI rather than just domestic prices. In a low pass-through environment, the policy maker can simultaneously strictly target (CPI) inflation, but still allow high volatility in the nominal exchange rate to stabilize the real economy in face of shocks. The low rate of pass-through ensures that exchange rate shocks do not destabilize the price level. An important feature of low pass-through is that it eliminates the trade-off between output volatility and inflation volatility in the comparison of fixed relative to floating exchange rates. Keywords: Exchange rate dynamics, the law of one price deviations, DSGE Models, Impulse Response