Iris Claus: Economic recovery following the 2008–09 global financial crisis has been slow. To accelerate economic growth, policy recommendations by G-20 countries have been to correct global imbalances by implementing structural reforms and more market-determined exchange rate systems. In their paper, Il Houng Lee and Kyunghun Kim take a different view. They argue that greater exchange rate flexibility by itself cannot resolve global imbalances and “policymakers should consider the long-term growth effect when formulating exchange rate policy as it could be a useful policy option for emerging markets with limited policy independence.”

Lee and Kim first define which countries should be classified as emerging economies and then assess the usefulness of greater exchange rate flexibility as a policy tool to (i) reduce the probability of a currency crisis; and (ii) to support long-run economic growth. A currency crisis is defined as an annual depreciation against the U.S. dollar of...

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