Exchange Rate Regime And Macroeconomic Stability. A Literature Survey

Globalization and short-term capital inflow volatilities generate challenges for policies and countries, as well as for global and regional markets. An appropriate exchange rate policy tool, complemented by reserve accumulation, macroprudential measures and, when needed, capital control is some of the instruments that could produce effective safety nets and macro stability. A conclusion of our research is that flexible regimes are preferred by developed countries, with credible institutions that rely on deep capital markets. Emerging economies with unreliable institutions prefer stability as the fixed rate gives credibility and the macroeconomic stability can be achieved without best macro conditions.