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Exchange Rate Target Zone Research

Posted on:2006-11-12Degree:DoctorType:Dissertation
Country:ChinaCandidate:Q ZhouFull Text:PDF
GTID:1116360155460687Subject:Finance
Abstract/Summary:PDF Full Text Request
Exchange rate target zone is a kind of the exchange rate. In 1980s, Williamson proposed the exchange rate target zone plan. Since then, exchange rate target zone has attracted intensive attention from researchers. Later, Paul Krugman presented the target zone model. However, the recent research mainly focus the exchange rate behavior within the zone in the developed countries. Research about the usage of target zone in developing countries is less in quantity.In this paper, we focus the application of target zone in the developing countries; especially we study the possibility to plan for the RMB exchange rate target zone. Our conclusion is that target zone is the suitable choice for China's exchange rate regime. We have also presented our initial plan for RMB target zone. This paper has filled the void to some extent.In chapter 1, we review the present research of target zone.In chapter 2, we discuss the relationship between target zone and internal/external equilibrium and impact. In open economy, the internal/external equilibrium is the most important policy target. With its economic effect of dynamic anchoring, expectation leading and hedging, target zone will provide stable environment. Therefore, target zone helps the economy to achieve internal/external equilibrium.In chapter 3, we study how to use target zone to prevent excess capital inflow and currency substitution. However, the use of target zone to prevent currency substitution is conditional. When economic situation is stable, target zone is an effective tool. When the economy is volatile, the divorce effect will lead to more currency substitution. Therefore, to main the equilibrium is important for target zone operation.In chapter 4, we discuss the target zone in the European Monetary System.We made empirical study for the operation result of target zone in Singapore and Indonesia in chapter 5. The conclusion is that with consistent balance of payment deficit, the exchange rate regime of target zone is not appropriate.From chapter 6, we revert to China's case. We analyzed the present operation of RMB exchange rate regime. From the past data, we learn that RMB has adopted a rigid target zone. This rigid zone is still in use. However, with more disequilibria, the old target zone is unsustainable. It is time to revert to the new flexible target right now.In chapter 7, we give our initial designing for the RMB exchange rate target zone.
Keywords/Search Tags:exchange rate target zone, internal/external equilibrium, capital inflow, currency substitution, RMB exchange rate regime
PDF Full Text Request
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