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A cautionary note in using patterns of shocks to determine optimal exchange rate policy. An exploration of Nepalese and Indian exchange rate relations: 1964-1994

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  • Nephil Matangi Maskay

Abstract

Nepal and India are developing countries in Asia whose (hard) peg has existed for almost forty years as well as no restriction on capital mobility between both countries. However, empirical results suggest that Nepal and India do not face symmetric patterns of shocks and are thus not suitable for a fixed exchange rate under this criteria. One possible explanation may be that the monetary authority plays some role in the short run to reduce the cost of the exchange rate regime. This suggests that some caution should be used in basing optimal exchange rate policy on this single criteria.

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  • Nephil Matangi Maskay, 2000. "A cautionary note in using patterns of shocks to determine optimal exchange rate policy. An exploration of Nepalese and Indian exchange rate relations: 1964-1994," Applied Economics, Taylor & Francis Journals, vol. 32(4), pages 491-497.
    • Handle: RePEc:taf:applec:v:32:y:2000:i:4:p:491-497
    DOI: 10.1080/000368400322651
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    1. Tamim Bayoumi and Barry Eichengreen., 1994. "The Stability of the Gold Standard and the Evolution of the International Monetary System," Center for International and Development Economics Research (CIDER) Working Papers C94-040, University of California at Berkeley.
    2. Bayoumi, Tamim & Ostry, Jonathan D, 1997. "Macroeconomic Shocks and Trade Flows within Sub-Saharan Africa: Implications for Optimum Currency Arrangements," Journal of African Economies, Centre for the Study of African Economies, vol. 6(3), pages 412-444, October.
    3. Barry Eichengreen, 1992. "Is Europe an Optimum Currency Area?," Palgrave Macmillan Books, in: Silvio Borner & Herbert Grubel (ed.), The European Community after 1992, chapter 8, pages 138-161, Palgrave Macmillan.
    4. Bayoumi, T. & Eichengreen, B., 1994. "One Money or Many? Analysing the Prospects for Monetary Unification in Various Parts of the World," Princeton Studies in International Economics 76, International Economics Section, Departement of Economics Princeton University,.
    5. Tamim Bayoumi & Barry Eichengreen, 1992. "Shocking Aspects of European Monetary Unification," NBER Working Papers 3949, National Bureau of Economic Research, Inc.
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    1. Nephil Matangi Maskay, 2001. "South Asian Monetary Integration in Light of the Optimum Currency Area Criterion of Patterns of Shocksâ€," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 2(2), pages 203-219, September.
    2. Nephil Matangi Maskay Ph.D., 2001. "Economic Factors Influencing The Probability of Adjustment in Nepal's Exchange Rate Policy with The Indian Currency (A Binominal Probit Analysis for the Period of 1976-7998)," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 13, pages 35-49, April.
    3. Nephil Matangi Maskay, 2002. "South Asian Monetary Integration in Light of the Optimum Currency Area Criteria Patterns of Shocks: A Reply," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 3(2), pages 281-284, September.

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