Exchange Rate Appreciation As a Signal of a New Policy Stance

Author/Editor:

Georg Winckler

Publication Date:

March 1, 1991

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

It is shown in a game theoretic framework that it may pay off to signal a “conservative” policy stance--giving a high priority to price stability--by appreciating the exchange rate. Such an appreciation demonstrates to domestic producers and more precisely to the trade union that the new policy stance is meant to be serious. An example explores the welfare implication for the policy maker and the trade union. The empirical background of the paper refers to the monetary policy in Europe. It explains the occurrence of exchange rate commitments to the deutsche mark, with appreciated rates.

Series:

Working Paper No. 1991/032

Subject:

Banking Exchange rates Foreign exchange Labor Labor unions Real exchange rates Wage adjustments Wages

English

Publication Date:

March 1, 1991

ISBN/ISSN:

9781451845068/1018-5941

Stock No:

WPIEA0321991

Pages:

20

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