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Exchange rate flexibility, financial market openness and economic growth

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Frame of Image  spotlight. Correcting global imbalance would contribute towards closing the demand gap. Emerging economies in particular should allow greater exchange rate flexibility and not intervene in the foreign exchange market to reflect fundamentals. Yet, the impact of greater exchange rate flexibility is unclear as they also struggle to keep their growth momentum alive and hedge against greater exposure to potential capital reversal than ever before. With the loss of monetary policy independence, emerging markets (EMs) are running out of policy options. Against this background, unless international policy coordination is fundamentally recast, a comprehensive review of all emerging market economies’ policy options are in order, including both macro policy instruments, micro measures, and global safety net aimed at attaining the best possible solution to escaping global recession.
JEL Classification: F31, F33, F43, G15 Keywords: exchange rate flexibility; financial market; economic growth; emerging economies; monetary policy independence
1
Based on “Time to Rethink Monetary Policy in Emerging Economies: Touching the tip of an iceberg,” World Economy Update, Vol. 4, No. 6, KIEP, and reflects comments received during the workshop held at Peterson Institute for International Economics, 10 March, 2016. † President of Korea Institute for International Economic Policy (KIEP), Building C, Sejong National Research Complex, 370 Sicheongdaero, Sejong-si 30147, Korea ‡ Research Fellow of KIEP *


Full Text
Title Exchange rate flexibility, financial market openness and economic growth
Similar Titles
Material Type Reports
Author(English)

Lee, Houngil; Kim, Kyunghun; Kang, Eunjun

Publisher

[Sejong]:Korea Institute for International Economic Policy

Date 2016-04
Series Title; No KIEP Staff Paper / 16-01
Pages 39
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Economy < Economic Conditions
Economy < Economic System
Holding KIEP

Abstract

With global recovery not in sight, along with calls for stronger structural reform, international policy coordination is again under spotlight. Correcting global imbalance would contribute towards closing the demand gap. Emerging economies in particular should allow greater exchange rate flexibility and not intervene in the foreign exchange market to reflect fundamentals. Yet, the impact of greater exchange rate flexibility is unclear as they also struggle to keep their growth momentum alive and hedge against greater exposure to potential capital reversal than ever before. With the loss of monetary policy independence, emerging markets (EMs) are running out of policy options. Against this background, unless international policy coordination is fundamentally recast, a comprehensive review of all emerging market economies’ policy options are in order, including both macro policy instruments, micro measures, and global safety net aimed at attaining the best possible solution to escaping global recession.