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The 'laissez faire' bias of managed floating
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UNSPECIFIED (1997) The 'laissez faire' bias of managed floating. JOURNAL OF INTERNATIONAL MONEY AND FINANCE, 16 (6). pp. 989-1000.
Full text not available from this repository, contact author.Abstract
The government of a small open economy trying to manage its exchange rate faces a 'time consistency' problem. If markets expect implementation of the optimal linear intervention rule, the government will be tempted to 'defect': knowing this, markets will expect less activism; and; in the discretionary equilibrium, this is what they get. How far this credibility problem can shift discretionary policy towards a free float is shown in two popular models of floating rates. One way of offsetting the 'laissez faire; bias of discretionary policy is to appoint a relatively 'conservative' central banker: but, as the time period of policy action and precommitment shrinks towards zero, the required conservative bias is found to go towards infinity. Other institutional features - such as central bank reputation, contracts and intermediate targets - may be crucial for successful exchange rate management. (C) 1997 Elsevier Science Ltd. All rights reserved.
| Item Type: | Journal Article | ||||
|---|---|---|---|---|---|
| Subjects: | H Social Sciences > HG Finance | ||||
| Journal or Publication Title: | JOURNAL OF INTERNATIONAL MONEY AND FINANCE | ||||
| Publisher: | ELSEVIER SCI LTD | ||||
| ISSN: | 0261-5606 | ||||
| Official Date: | December 1997 | ||||
| Dates: |
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| Volume: | 16 | ||||
| Number: | 6 | ||||
| Number of Pages: | 12 | ||||
| Page Range: | pp. 989-1000 | ||||
| Publication Status: | Published |
Data sourced from Thomson Reuters' Web of Knowledge
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