NOT FIXED, NOT FLOATING: WHAT ABOUT OPTIMAL BASKET PEGS FOR SOUTHEAST ASIA?

Abstract

NOT FIXED, NOT FLOATING: WHAT ABOUT OPTIMAL BASKET PEGS FOR SOUTHEAST ASIA? Ramkishen S. Rajan This paper is divided into two parts. The first part examines the case for currency basket regimes for the crisis-hit Southeast Asian economies. The second part explores the question of how to determine an optimal currency basket peg and how heavily the yen ought to be weighed in any such basket. It is argued that at least three important targets, viz. inflation (imports), trade competitiveness (exports) and the size of foreign currency debt need to be taken into account when determining an optimal weighting scheme. Currency basket pegs for Southeast Asia are estimated. Key words: basket peg, exchange rate regimes, exports, imports, inflation, Southeast Asia JEL Classification: F31, F33, F41 Contact author: Ramkishen S. Rajan School of Economics, University of Adelaide, Australia Tel: +61 8 8303 4666 Fax: +61 8 8223 1460 E-mail: ramkishen.rajan@adelaide.edu.au. NOT FIXED, ...

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