Exchange Rate Arrangements Among Sticky and Flexible Price Countries: Implications for some Asia-Pacific Economies

The present paper examines a two-country model one with flexible wage and prices (which seems to characterize most high performance East Asian economies), and the other with sticky wage and prices. Wage and prices often "over-shoot" in the flexible wage economy. The impacts of fixed and floating exchange rage regime on the flexible wage economy is typically different. A fixed (floating) exchange rate regime is superior for financial (real or technological) shocks. [F31]