03 November 2011

Exchange rate policy in small rich economies

A seminar on the exchange rate policy in small rich economies will be held in the Central Bank of Iceland on 8 November at 3:00 pm.

Francis Breedon, professor of economics at Queen Mary, University of London will present research that has been published in the Central Bank of Iceland Working Paper series No. 53. Co-authors of this paper are Þórarinn G. Pétursson, chief economist at the Central Bank of Iceland and Andrew K. Rose, professor at Haas School of Business, Berkeley, USA. The paper looks at the experience of different exchange rate policy choices for small economies. These economies usually choose some form of fixed exchange rate regime due to the relative high per capita cost of managing an independent monetary policy. When such countries do choose a flexible exchange rate regime, they appear to derive no benefit from those regimes; their exchange rate volatility seems to rise without any significant change in economic volatility in other fundamentals. Thus, a choice of a hard peg for these economies does not entail a rise in economic volatility.