Macroeconomics, 2nd Edition by Pearson

THE TRADE BALANCE AND EXCHANGE RATES

153

of countries, she demonstrated that no emerging country actually allows its

exchange rate to float because the governments of those countries suffer from

what Calvo and Reinhart

41

dubbed the

FEAR

OF

FLOATING

. Fear of floating exists

when a country claims to be pursuing domestic policy goals, such as price sta-

bility and full employment, that are independent of the exchange rate and yet

that country repeatedly intervenes, directly or indirectly, to keep the exchange

rate in check. This is distinguished from simple dirty floating by the predomi-

nant use of domestic monetary policy instruments—mainly ...