Why countries like Argentina and Turkey fret about exchange rates

IMAGINE if Milton Friedman had been put in charge of a central bank, only to lose his job for expanding the money supply too quickly. Or if Robert Shiller, the Nobel-prizewinning author of “Irrational Exuberance”, were given a similar post, only to depart having allowed a stockmarket bubble to inflate. That is the kind of irony that attended the resignation under pressure of Federico Sturzenegger as governor of Argentina’s central bank on June 14th, a casualty of deepening turmoil in emerging markets.

Mr Sturzenegger was a former professor at Universidad Torcuato Di Tella in Buenos Aires. His most-cited paper showed that stated currency policy was often a poor guide to actual policy. Many countries claim to let their currencies float freely but in fact “intervene recurrently to stabilise their exchange rates”. Their deeds often belie their words.

Mr Sturzenegger lost his job for much the same thing. Financial markets struggled to reconcile his statements on the currency with his...

via The Economist: Finance and economics Business Feeds

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