East Asian Exchange Rate Regime Choice

This paper focuses on the choice of exchange rate regime in East Asia. Exchange rate regime, with the background of high capital mobility in today's world, has now become an extremely sensitive issue to many developing countries, especially those emerging economies in East Asia.In view of the fact that most East Asian countries have taken some sort of peg-to-dollar regime in practice, the author points out, after comparing all the forms and defining the term of intermediate exchange regime, that the pre-announced "BBC" regimes constitute the narrow-defined intermediate exchange regime, whereas the broader definition also includes the fixed-but-adjustable regime. The theoretical framework covers three parts, namely the Frieden Matrix, which sums up the policy preferences of different interest groups; the Government Loss Function, which shows government's attempt of keeping a balance between the choices of decreasing the unemployment pressure and restraining inflation; and the revised Barro-Gordon Model, which intends to underscore the credibility of exchange rate regime.By the theoretical analysis and empirical test, this paper comes to some basic conclusions: the choice of the exchange rate regime in East Asia is not only the result of economic factors, but also the result of political and institutional factors. Among those factors, some support fixed-prone regimes, while some support flexible regimes. As a consequence of the composition of the two forces, intermediate regime would be a compromise and thus a reasonable choice.