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Optimal choice of an exchange rate regime: a critical literature review
Mariam Ouchen
Cadi Ayyad University, Faculty of Economics Marrakesh Morocco, University of Basel

17. January 2013

Online at http://mpra.ub.uni-muenchen.de/43907/ MPRA Paper No. 43907, posted 21. January 2013 12:56 UTC

Optimal Choice of an Exchange Rate Regime: A Critical Literature Review 1 Mariam OUCHEN Laboratory of innovation, responsibility and sustainable development Cadi Ayyad University, Faculty of Economics Marrakesh Morocco Center of Macroeconomics and economic theory University of Basel
Abstract :This paper set out to review the main theories and empirical methods employed in selecting an appropriate exchange rate regime.In order to achieve this, the paper is organized as follows : Section 2 introduces the distinct classifications of exchange regimes(de jure exchange rate regimes versus the facto exchange rate regimes), and the different theoretical approaches which illustrate how an optimal exchange rate regime is determined . Despite their initial popularity, the theoretical considerations have not escaped criticism.Section 3 reviews the criticism of these theories.A conclusion is provided in Section 4. Keywords : Exchange rate regime, the structural approach, credibility, flexibility, the bipolar view.

1 - Introduction
The literature on the selection of exchange rate regimes can be divided into three main groups : the structural approach, the trade-off between credibility and flexibility and the“bipolar view“ or “corner solution“. Classical literature refers to earlier studies which examined systematic differences between floating and fixed exchange rate regimes.The analysis in these studies is closely related to the literature on the choice between fixed and flexible regimes based firstly,on the nature of the shocks generated by changes in

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