The ‘laissez faire’ bias of managed floating |
| |
Authors: | Marcus Miller Laura Papi |
| |
Affiliation: | University of Warwick, Coventry CV4 7AL, England, and CEPR;International Monetary Fund, Washington DC 20431, USA |
| |
Abstract: | The government of a small open economy trying to manage its exchange rate faces a ‘time consistency’ problem. If markets expect implementation of the optimal linear intervention rule, the government will be tempted to ‘defect’: knowing this, markets will expect less activism; and, in the discretionary equilibrium, this is what they get. How far this credibility problem can shift discretionary policy towards a free float is shown in two popular models of floating rates. One way of offsetting the ‘laissez faire’ bias of discretionary policy is to appoint a relatively ‘conservative’ central banker: but, as the time period of policy action and precommitment shrinks towards zero, the required conservative bias is found to go towards infinity. Other institutional features — such as central bank reputation, contracts and intermediate targets — may be crucial for successful exchange rate management. |
| |
Keywords: | JEL classification: F31 |
本文献已被 ScienceDirect 等数据库收录! |
|