The Short-term And Long-term Effect Of Exchange Rate Fluctuation On The Economy Based On The Different Anchor Currency

Exchange rate fluctuations serves as the main monetary policy used by every country tointervene economic development. The governments of the countries and districts make it thepriority after the economic crisis and consider it the most important factor to keep a stableeconomy.In twentieth Century thirty,by Keynes’ study, exchange rate fluctuations is anefficient way to regain international competitiveness quickly.On the contrary,Hayek criticizedexpansionary monetary policy, he also considered a stable monetary policy as the mosteffective way to keep a long term of economic growth.The different influences of fluctuationof exchange rate on long term or short term economic growth would be a very significantguideline for making proper monetary policies.If any country wants to have a stable monetary circumstance they need to pay theirattention to the anchor currency.As the economic and political pattern keep changing, theinternational monetary market also changed significantly.From gold standard to the brettonwoods system and then to the collapse of the system, anchor currency is no longer based ongold or dollar but multi-currencies.As a result of that, different country chooses different kindof anchor currency considering their own conditions like the foreign trade status, industrialdevelopment model, geographical conditions and etc.This article studies the differentinfluences put by exchange rate fluctuations of various anchor currencies on the long termand short term economic development in the worldwide range.As the examples adopted bythis article are very representative and universal, this study on the influence of exchange ratepolicies would be conducive to build our own monetary policy by providing the theoreticaland practical foundations.This article chosen39countries and divided them into4different groups based on theirdifferent anchor currencies as a special way to build the dynamic error correction model. Thepanel data analysis research and the pooled mean group estimator(PMG) used by maincountries to analyse the influences of the exchange rate fluctuations on long term and shortterm economic growth.The PMG combine the character of similar tendency in long term anddifference in short term,which is the best estimator in this research.And the data period isform1996to2012.The empirical results show that the exchange rate fluctuations is harmful with the longterm economic growth but beneficial with the short term economic growth. Such results combined the early studies by Keynes and Hayek on the monetary policy on long term andshort term economic growth. Based on those studies, this article suggest that the governmentshould combine the management of exchange rate fluctuations policy and the adjustment ofeconomic structure and, at the same time, give consideration to the long and short termeconomic interests.