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Author:Hoffmann, M.
Title:International financial markets' influence on the welfare performance of alternative exchange rate regimes
Journal:Oxford Economic Papers
2010 : JUL, VOL. 62:3, p. 442-477
Index terms:financial markets
exchange rates
monetary policy
Language:eng
Abstract:This article analyses how the structure of international financial markets alters the welfare ranking of alternative exchange rate regimes in small open economy. It is shown that financial market integration results in different monetary policy objectives, that is stabilizing domestic goods prices as opposed to stabilizing the nominal exchange rate. Financial market integration means moving from segmented towards complete financial markets. The welfare ranking of different exchange rate rules can change in the process of international financial integration. It becomes obvious that no single exchange rate regime outperforms the others in stabilizing both domestic consumption and output variability in the process of financial market integration.
SCIMA record nr: 271288
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