Accumulating Foreign Reserves Under Floating Exchange Rates
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
Summary:
Official accumulation of foreign reserves may be perceived as interventions to influence the exchange rate, undermining the credibility of floating exchange rates and inflation targets. This paper develops a theoretical framework to study the interaction between reserve accumulation and monetary policy. The model uncovers a trade-off between the speed of reserve accumulation and anti-inflationary credibility. Under reasonable assumptions, delegation of intervention and monetary policy decisions to separate government agencies allows faster reserve accumulation, while centralization of these decisions results in a more stable economy. The analysis underscores the importance of rather overlooked institutional features of policymaking in open economies.
Series:
Working Paper No. 2008/096
Subject:
Foreign exchange intervention Inflation Inflation targeting Institutional arrangements for revenue administration Reserves accumulation
English
Publication Date:
April 1, 2008
ISBN/ISSN:
9781451869576/1018-5941
Stock No:
WPIEA2008096
Pages:
41
Please address any questions about this title to publications@imf.org