IDEAS home Printed from https://ideas.repec.org/a/idn/journl/v8y2005i3p1-17.html
   My bibliography  Save this article

Changing Perspectives on Exchange Rates: Theory and Policy Implications

Author

Listed:
  • Perry Warjiyo

    (Bank Indonesia)

Abstract

This paper redownloads theoretical and empirical perspectives pertaining to the nature and impacts of exchange rate movements on macroeconomic conditions, and their fundamental ramifications on macroeconomic and monetary policies. In particular, we show that, with increasing speed and scope of financial globalization and cross-border capital flows, the download on exchange rate has been changing from trade flows to financial asset downloads. Exchange rate movements have been exhibiting greater volatility beyond fundamentals and often deviate from equilibrium, driven by factors such as shifts in risk premia, investor preferences, as well as underlying economic and financial conditions. Policy implications from such a changing perspective on exchange rate have been pervasive. Exchange rate has not been singled out as an instrument for increasing a country’s external sector competitiveness in the modern literature of international finance. Rather, it constitutes an integral part of policy mix for coping with the impossible trinity of macroeconomic objectives in open economy, i.e. for benefiting from greater capital mobility while still maintaining stable exchange rate movements and domestic policy independence. The complete policy responses would include direct measures for stabilizing exchange rate, some forms of capital controls, and the implementation of inflation targeting framework of monetary policy.

Suggested Citation

  • Perry Warjiyo, 2005. "Changing Perspectives on Exchange Rates: Theory and Policy Implications," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 8(3), pages 1-17, December.
  • Handle: RePEc:idn:journl:v:8:y:2005:i:3:p:1-17
    DOI: https://doi.org/10.21098/bemp.v8i3.138
    as

    Download full text from publisher

    File URL: https://bulletin.bmeb-bi.org/cgi/viewcontent.cgi?article=1441&context=bmeb
    Download Restriction: no

    File URL: https://libkey.io/https://doi.org/10.21098/bemp.v8i3.138?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Keywords

    Monetary Policy; International Finance; Macroeconomic Aspects of International Trade and Finance;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:idn:journl:v:8:y:2005:i:3:p:1-17. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lutzardo Tobing or Jimmy Kathon (email available below). General contact details of provider: https://edirc.repec.org/data/bigovid.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.