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The Case for an Intermediate Exchange Rate Regime with Endogenizing Market Structures and Capital Mobility

Set in the context of the recent theoretical and policy debates on appropriate exchange rate regimes for emerging market economies in a world of free capital mobility, the paper attempts to present the case for an intermediate exchange rate regime, drawing on recent theoretical and empirical literatures on behavioural finance and currency market structures; and to examine empirically the experiences and evolution of Brazil’s foreign exchange market under different exchange rate regimes. After a brief review of the policy debates, we discuss theoretical discourses on appropriate exchange rate regimes for emerging market economies, drawing on both macroeconomic propositions and microeconomic market perspectives. Next, we discuss empirical studies of currency market conditions with focus on the most recent applications of behavioural finance models to currency markets. We emphasize the importance of endogenizing structures of market conditions in our consideration of appropriate exchange rate regimes for emerging market economies, presenting hypotheses for empirical tests, methodology adopted and empirical results, and briefly conclude with final remarks.
Publisher:
UNU-WIDER
Series:
WIDER Research Paper
Volume:
2009/29
Title:
The Case for an Intermediate Exchange Rate Regime with Endogenizing Market Structures and Capital Mobility
Authors:
Annina Kaltenbrunner and Machiko Nissanke
Publication date:
May 2009
ISBN Web:
1810-2611
ISBN 13 Web:
9789292302009
Copyright holder:
© UNU-WIDER
Copyright year:
2009
Keywords:
exchange rate management, emerging markets, Brazil
JEL:
E44, F31, F41, O24
Project:
Southern Engines of Global Growth
Sponsor:
UNU-WIDER gratefully acknowledges the financial contributions to the research programme by the governments of Denmark (Royal Ministry of Foreign Affairs), Finland (Ministry for Foreign Affairs), Norway (Royal Ministry of Foreign Affairs), Sweden (Swedish International Development Cooperation Agency—Sida) and the United Kingdom (Department for International Development).
Format:
online
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