Book Review - THE ECONOMISTS’ VOICE by Stiglitz, J.E., A.S. Edlin, and J.B. DeLong (eds.), Columbia University Press. New York.

The Economists’ Voice presents a series of small papers by prominent economists on subject areas within the general discipline of economics that are regarded as highly topical. All in all, there are 35 chapters in the volume. These chapters are divided into 9 main themes – which include climate change, the international economy, the Iraq war, fiscal policy, social security, tax reform, social policy, the death penalty and real estate. With the exception of the section on the death penalty – where there is something of a debate taking place amongst the chapters – each section and each paper within it are essentially self-contained. Each paper takes a look at a specific aspect of the theme and presents an argument or two before offering a conclusion of policy implication.

Sterilisation, Capital Mobility and Interest Rate Determination for East Asia

This paper uses a simple open economy interest rate determination model to empirically examine an important aspect of pre-crisis monetary and exchange rate policy. It investigates whether sterilisation of the reserve effects of capital inflows helped keep interest rates sufficiently high that they may have prolonged the inflow of capital. Despite the use of a pre-crisis sample in this study, the issues in this paper have relevance today given the recent trend in foreign capital inflow for Asia. The empirical section is concerned with the effect of reserve flows on the interest rate and is divided into two parts. The first tests for a contemporaneous effect of the basic model using OLS and IV methods. The second generalises the model to assess for lagged effects by way of VAR analysis. The results show that there are some contemporaneous effects of sterilisation on the domestic interest rate though the effects are stronger when estimating the lagged model.Sterilisation, Capital flows, Interest Rates

Sterilisation, Capital Mobility and Interest Rate Determination for East Asia

This paper uses a simple open economy interest rate determination model to empirically examine an important aspect of pre-crisis monetary and exchange rate policy. It investigates whether sterilisation of the reserve effects of capital inflows helped keep interest rates sufficiently high that they may have prolonged the inflow of capital. Despite the use of a pre-crisis sample in this study, the issues in this paper have relevance today given the recent trend in foreign capital inflow for Asia. The empirical section is concerned with the effect of reserve flows on the interest rate and is divided into two parts. The first tests for a contemporaneous effect of the basic model using OLS and IV methods. The second generalises the model to assess for lagged effects by way of VAR analysis. The results show that there are some contemporaneous effects of sterilisation on the domestic interest rate though the effects are stronger when estimating the lagged model.sterilisation, capital flows, interest rates

Have Exchange Rate Regimes in Asia Become More Flexible Post Crisis? Re-visiting the Evidence

There is a broad consensus that the soft US dollar pegs operated by a number of Asian countries prior to 1997 contributed to the regional financial crisis of 1997-98. There is, however, much less agreement on the types of exchange rate regimes operated by many Asian countries since the crisis. Can they still be characterized as soft US dollar pegs, or have they become genuinely more flexible? This paper revisits the evidence regarding the extent of exchange rate flexibility in the five Asian countries (Indonesia, Korea, Malaysia, the Philippines and Thailand) post crisis using alternative methodologies and data up to mid 2004. Using alternative methodologies is critical as different measures or parameters could lead to diametrically opposite conclusions regarding the type of exchange rate regime operated by a country.Asia, exchange rate regime, inflation targeting, interest rates, reserves, soft dollar peg

A note on exchange rate regimes in Asia: Are they really what they claim to be?

This paper presents an analysis of the degree of de facto exchange rate flexibility in the exchange rate regimes for selected emerging Asian economies over the decade 1999-2009. While the propensity for foreign exchange intervention and exchange rate management among regional central banks remains fairly high in many cases and that the degree of fixity to the US dollar remains very strong, we note that these relationships correlate to some extent with the IMF exchange rate classifications. Specifically, we find that the inflation targeting countries exhibit less fixity and are less influenced by the US dollar than the non-inflation targeters. We also find that the managed floaters (as defined by the IMF) exhibit less fixity and are less influenced by the US dollar than the conventional peggers.Asia, Exchange Rate Regimes, Inflation Targeting, Intervention

Exchange Rate Arrangements for East Asia Post-Crisis: Examining the Case for Open Economy Inflation Targeting

The infeasibility of a monetary union for East Asia in the near future, as well as the limitations of other forms of super fixes, appears to leave a flexible regime as the only viable policy option. This paper first deliberates on the case for and against a flexible regime. To anticipate the main conclusion - while favoring relatively more flexible regimes, emerging economies in East Asia and elsewhere have continued to heavily manage their currencies despite being officially described as ?floaters?. The paper goes on to explore the case for and operational mechanics behind an open inflation targeting regime which has increasingly been advocated for small and open economies in East Asia and elsewhere. The importance of incorporating the exchange rate in open economy monetary policy rules is stressed. The post-crisis East Asian monetary policy arrangements provide a suitable context for analyzing what part the exchange rate might play in the construction of an inflation targeting regime and there is evidence suggesting that East Asian monetary authorities have been attempting to manage the variability of the currency movements.East Asia, Exchange Rate Regime, Fixed versus Float, Inflation Targeting, Monetary Policy Rules

Designing Appropriate Exchange Rate Regimes for East Asia: Inflation Targeting and Monetary Policy Rules

While favoring relatively more flexible regimes, emerging economies in East Asia and elsewhere appear to heavily manage their currencies despite being officially described as “floaters”. In other words, revealed preferences of regional monetary authorities appear to indicate a high degree of “fear of floating”. The paper first explores the reasons for this fear of floating. It then goes on to examine the case for and operational mechanics behind an open inflation targeting regime which has increasingly been advocated for small and open economies in East Asia and elsewhere. The paper also attempts a reconciliation between the discussion of analytics behind open economy inflation targeting and its implications for exchange rate design, on the one hand, and actual exchange rate ongoings in East Asia, on the other.exchange rate, East Asia, fear of floating, impossible Trinity inflation targeting, monetary policy rules

Have Exchange Rate Regimes in Asia become More Flexible Post crisis? Re- Visiting the Evidence

There is a broad consensus that the soft US dollar pegs operated by a number of Asian countries prior to 1997 contributed to the regional financial crisis of 1997-98. There is, however, much less agreement on the types of exchange rate regimes operated by many Asian countries since the crisis. Can they still be characterized as soft US dollar pegs, or have they become genuinely more flexible? This paper revisits the evidence regarding the extent of exchange rate flexibility in the five Asian countries (Indonesia, Korea, Malaysia, the Philippines and Thailand) using alternative methodologies and data spanning the pre- and post-crisis time period. Given the diversity of measures of de facto regimes in the literature, the use of alternative methodologies in this paper is critical as a means of obtaining an accurate and robust indication of the type of exchange rate regime operated by a country.Asia, exchange rate regime, inflation targeting, interest rates, reserves, soft dollar peg

Inflation Targeting Arrangements in Asia: Exploring the Role of the Exchange Rate

Since the Asian crisis it has been recognized that exchange rate and monetary policy strategies must involve a “fairly high” element of flexibility rather than a single-minded defense of a particular rate. One way this flexibility might be introduced is by a country adopting an open economy inflation targeting arrangement. This particular policy regime has been officially implemented in several Asian countries in recent years, but the normative implications of inflation targeting appear at times to be at odds with the requirements regarding exchange rate flexibility. This paper presents an analysis of some of the issues relevant to Asian central banks implementing an inflation targeting arrangement with specific focus on the role of the exchange rate.Asia, exchange rate regime, inflation targeting arrangement, fear of floating, monetary policy rule, pass through

A Survey of Financial Integration in East Asia; How Far? How Much Further to Go?

This paper offers a selective survey of the recent empirical literature on financial integration, the focus being on alternative definitions of financial integration and measurement issues and results. The literatures to be reviewed have been selected primarily because their analyses have included some East Asian economies. In particular, this study concentrates on the ASEAN?5 plus 3 or APT economic group (i.e. Indonesia, Thailand, Malaysia, Philippines, Singapore, Korea, China and Japan) as well as Hong Kong and Chinese Taipei. These are the economies that have consciously attempted to intensify intraregional monetary and financial cooperation in the last few years, particularly since the East Asian crisis of 1997-98.Capital controls, East Asia, equity, financial integration, parity conditions.