Policy Challenges in a Dual Exchange Rate Regime

Authors

Sven W. Arndt, Claremont McKenna CollegeFollow

Document Type

Article

Department

Economics (CMC)

Publication Date

8-2012

Abstract

It is known that the effectiveness of macro policies depends on the exchange-rate regime. Pertinent models have typically considered either fixed or floating rates rather than mixed regimes. In recent years, however, the dollar has floated against most currencies, while being fixed against the yuan. This paper argues that a flex-price, dual-rate model consisting of the U.S., China and the Eurozone, combined with distinct adjustment patterns in tradables and non-tradables sectors and a tendency for policy makers to treat inflation in housing as pure asset inflation, provides a plausible explanation of the great moderation and its aftermath.

Rights Information

© 2012 Association of Korean Economic Studies

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Recommended Citation

Arndt, Sven W. 2012. Policy Challenges in a Dual Exchange Rate Regime. Korea and the World Economy 13(2): 175-188.