The Exchange Rate as an Export-Stimulation Mechanism

Abstract

For governments there is no getting around the need to follow an exchangerate policy. First, a decision has to be made on which system to adopt: a fixed-rate (for all practical purposes a fixed-but-adjustable peg) system, a fully-floating rate system, or something in between, such as a predetermined crawling peg or tablita system. Second, in a fixed-rate system some level of the exchange rate must be chosen and in a floating-rate system a choice must be made between fully free-floating and ‘dirty’ floating. The choice depends on a government’s policy aims and on the economic environment.