2020
DOI: 10.1017/s1365100520000383
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“Wait and See” or “Fear of Floating”?

Abstract: This paper studies the evolution of China’s exchange rate policy using real options theory. With intervention costs and ongoing uncertainty, intervention involves the exercise of an option. Increased uncertainty increases the value of this option. This “wait and see” effect leads the Central Bank to widen its intervention band. However, increased volatility also produces larger fluctuations in welfare, which creates a “fear of floating.” This induces the Central Bank to set a tighter band. To study this trade-… Show more

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Cited by 6 publications
(1 citation statement)
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“…However, many countries have also failed to formulate policies to control the Covid-19 Pandemic and have adopted a "wait and see" policy path. (Lei et al, 2020)…”
Section: Legal Structurementioning
confidence: 99%
“…However, many countries have also failed to formulate policies to control the Covid-19 Pandemic and have adopted a "wait and see" policy path. (Lei et al, 2020)…”
Section: Legal Structurementioning
confidence: 99%