What is it about?
Exchange rate regimes consist of free floats, hybrid floats, or fixed exchange rate regimes. The United States (US$) or United Kingdom (£) for instance operate free floats while the Euro or Naira (Nigerian currency) are managed using different types of hybrid floats. This study shows benchmarks of monetary efficiency differ depending on the exchange rate regime. In hybrid regimes, exchange rates are not in of themselves measures of monetary efficiency. In free float regimes, however, exchange rates are measures of monetary efficiency.
Why is it important?
Differences between hybrid and free floating exchange rate regimes are important because while changes in exchange rates over time can be utilized in comparisons of monetary efficiency within a cross-section of countries that operate free floats, the same cannot be said of countries that operate hybrid exchange rate regimes. In countries that operate hybrid exchange rate regimes, determination of monetary efficiency requires studies of interactions between exchange rates and balance of payments outcomes. Since balance of payments outcomes have implications for inflation or interest rates, estimates of monetary efficiency can be arrived at also within the context of interactions between exchange rates, inflation, or interest rates.
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This page is a summary of: Implications of New Keynesian Theory for Benchmarking of Monetary Efficiency, International Journal of Regional Development, August 2016, Macrothink Institute, Inc.,
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