Financial Market Integration and Exchange Rate Policy

66 Pages Posted: 15 Feb 2006

See all articles by Donald J. Mathieson

Donald J. Mathieson

International Monetary Fund (IMF)

Liliana Rojas-Suarez

Center for Global Development

Date Written: January 1990

Abstract

This paper examines how a country`s exchange rate policy should be adjusted when the degree of integration between domestic and external financial markets increases as a result of both domestic financial liberalization and the relaxation of capital controls. As the financial structure is opened and liberalized, the optimal scale of exchange market intervention changes as the relative importance of different domestic and foreign shocks for output and price stability is altered. Nonetheless, the response of the optimal degree of intervention to increases in the variances of the various domestic and foreign shocks is similar across all financial structures.

JEL Classification: 431

Suggested Citation

Mathieson, Donald J. and Rojas-Suarez, Liliana, Financial Market Integration and Exchange Rate Policy (January 1990). IMF Working Paper No. 90/2, Available at SSRN: https://ssrn.com/abstract=884513

Donald J. Mathieson (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Liliana Rojas-Suarez

Center for Global Development ( email )

2055 L St. NW
5th floor
Washington, DC 20036
United States

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