Exchange rate regime and monetary policy independence in East Asia

Chang Jin Kim, Jong Wha Lee

Research output: Contribution to journalArticle

17 Citations (Scopus)

Abstract

This paper investigates whether the choice of exchange rate regimes influences the sensitivity of domestic interest rates to international interest rates. We empirically analyse this issue in the context of East Asian economies by employing a regime switching model. We find that the sensitivity of local interest rates to international interest rates declined in Korea and Thailand after they adopted floating exchange rate regimes. We also find that Japan, with a floating exchange regime, has greater independence in monetary policy than a pegged economy such as Hong Kong. These empirical findings suggest that exchange rate flexibility provides greater monetary independence.

Original languageEnglish
Pages (from-to)155-170
Number of pages16
JournalPacific Economic Review
Volume13
Issue number2
DOIs
Publication statusPublished - 2008 May

ASJC Scopus subject areas

  • Economics and Econometrics

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