Author Abstract
Carry-trade activity and foreign participation in local-currency-bond markets in emerging countries have increased dramatically over the past decade. In light of these trends, we revisit the question of the optimal exchange-rate regime when developing countries can borrow internationally with local-currency-denominated debt. We find that, as local currency bond markets develop, a "pseudo-flexible regime," whereby a country accumulates reserves in conjunction with debt, to be the best policy alternative under real external shocks for emerging nations.
Paper Information
- Full Working Paper Text
- Working Paper Publication Date: February 2013
- HBS Working Paper Number: 13-074
- Faculty Unit(s): Business, Government and International Economy