Advertisement

Exchange Rate Policy Coordination under Inflation Targeting between Japan and Korea

  • Inchul KimEmail author
Article

Abstract

Both Japan and Korea are very sensitive to changes in their exchange rate against the U.S dollar as they are trade rivals in the world market. Due to domestic political pressure, the central bank of each country is tempted to devalue its currency. In this paper we demonstrate, based on game theory, that the two rival countries can become better off if they conduct exchange rate policy coordination. To seek mutual benefit, we propose mutually agreeable rules of exchange rate intervention for Japan and Korea. Also we suggest that a range target is better than a point target. This claim is based on theoretical and practical considerations.

Key words

policy coordination inflation targeting exchange-rate targeting monetary targeting point targets and a range target 

JEL Classification Codes

F31 F36 and F42 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Bernanke, Ben S. & Mishikin, Frederic S. 1997. “Inflation Targeting: A New Framework for Monetary Policy?” Journal of Economic Perspectives, 2: 97–116CrossRefGoogle Scholar
  2. Bernanke, Ben S., Laubach Thomas, Mishikin, Frederic S. & Posen, Adam S. 1999. Inflation Targeting.Google Scholar
  3. Friedman, Milton. 1997. “Nobel Lecture: Inflation and Unemployment.” Journal of Political Economy, 85(3): 451–72.CrossRefGoogle Scholar
  4. Harrington, Joseph E. 2008. Games, Strategies, and Decision Making, Worth PublishersGoogle Scholar
  5. Kydland, Finn, & Prescott, Edward, 1977. “Rules Rather than Discretion: The Inconsistency of optional plans.” Journal of Political Economy 85(3): 473–92.CrossRefGoogle Scholar

Copyright information

© Japan Economic Policy Association (JEPA) 2008

Authors and Affiliations

  1. 1.Sungkyunkwan UniversitySeoulKorea

Personalised recommendations