Working Paper: NBER ID: w2648
Authors: Jacob A. Frenkel; Morris Goldstein
Abstract: This paper addresses several fundamental issues raised by recent developments in the world economy and considers their implications for the design and functioning of the international monetary system. We do not make any proposals. The four issues examined in the paper are: (1) Can the exchange rate regime do much to discipline fiscal policy?; (2) What are the extent and costs of reduced monetary independence under greater fixity of exchange rates?; (3) How can the equilibrium exchange rate best be determined?; (4) Does a well functioning international monetary system require a clearly defined set of rules, an acknowledged leader, and an explicit anchor?
Keywords: International Monetary System; Exchange Rates; Fiscal Policy; Monetary Policy
JEL Codes: F3; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fixed exchange rate regime (F33) | discipline to fiscal policy (E62) |
| fixed exchange rate regime (F33) | responsible fiscal behavior (E62) |
| fixed exchange rate regime (F33) | irresponsible fiscal policies (E62) |
| target zones (R32) | monetary policy loosening (E52) |
| managed floating regimes (F33) | reduce perverse monetary policy responses (E52) |