He Liping pointed out that not all countries can control their exchnage rates. As an example, Hong Kong cannot control its basket value. He also pointed out that the paper finds support for Friedman's observation that free floating currencies are less volatile than currencies that are not free floating. If so, he asked the autbors why the central bank should intervene to reduce exchange rate volatility.
Maria Socorro Gochoco-Bautista noted that the paper's underlying issue is really a country's optimal exchange rate policy. Reducing exchange rate volatility is a desirable outcome, but it should not be taken as equivalent to an optimal active policy of exchange rate management. The optimal exchange rate policy depends on the kinds of shocks that hit an economy. The choice of fixed versus flexible exchange rates depends on many factors. In the case of adopting a fixed exchange rate regime, for example, it is ideally...