Optimal Currency Baskets for Small, Developed Economies

Optimal Currency Basket Pegs for Developing and Emerging Economies

“…In addition, these types of arrangements have not been studied in a manner that illuminates events such as the Central European and East Asian currency crises. This is because the literature on optimal currency weights tends to focus on the goods sector of the economy only (see Connolly andYousef 1982, andEdison andVrdal 1990, as examples), or focuses on developed economies, assuming perfect capital mobility and no currency substitution (Turnovsky 1982). Although these models generate interesting results, their assumptions are inconsistent with the conditions that exist in transitional and emerging economies.…”

Interest-Rate Arbitrage in Currency Baskets: Forecasting Weights and Measuring Risk

“…It has since been extended by Turnovsky (1982), Bhandari (1985), and Edison and Vaardal (1990), and it typically implies that the optimal weights are changing over time with macroeconomic fundamentals. Conversely, the financial literature on basket regimes usually assumes fixed weights; see Graf von der Schulenburg (1984), Horngren and Vredin (1989), Klein (1989), and Pikkarainen (1991).…”

An Optimal Currency Basket to Minimize Output and Inflation Volatility: Theory and an Application to Hong Kong

“…J N ≡ 1). As Edison and Vardal () show, the classical definition of pegging to a currency basket is that the weighted sum of the percentage changes of home currency exchange rates to these currencies is zero; that is, where ω i is the weight of currency i in the currency basket and .…”