## Does Monetary Policy Stabilize the Exchange Rate Following a Currency Crisis?

_IMF Working Papers, March 1, 1999_

## Source details

**Canonical URL:** [Does Monetary Policy Stabilize the Exchange Rate Following a Currency Crisis?](https://www.imf.org/en/publications/wp/issues/2016/12/30/does-monetary-policy-stabilize-the-exchange-rate-following-a-currency-crisis-2932)

## Other formats

- [Markdown version](/en/publications/wp/issues/2016/12/30/does-monetary-policy-stabilize-the-exchange-rate-following-a-currency-crisis-2932/index.md)
- [Structured JSON version](/en/publications/wp/issues/2016/12/30/does-monetary-policy-stabilize-the-exchange-rate-following-a-currency-crisis-2932/index.json)
- [Bundle manifest](/en/publications/wp/issues/2016/12/30/does-monetary-policy-stabilize-the-exchange-rate-following-a-currency-crisis-2932/bundle-manifest.json)

## Bibliographic details
- Authors: Ilan Goldfajn, Poonam Gupta
- Published: March 1, 1999
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451846195.001

---

### Summary
- Paper analyzes the relationship between monetary policy and the exchange rate in the aftermath of currency crises.
- Dataset covers currency crises in 80 countries for the period 1980-98.
- Central question: Can monetary policy increase the probability of reversing a postcrisis undervaluation through nominal appreciation rather than higher inflation?
- Main finding: Tight monetary policy facilitates the reversal of currency undervaluation through nominal appreciation.
- Conditional finding: When the economy also faces a banking crisis, results are not robust; depending on the specification, tight monetary policies may not have the same effect.

### Major Findings and Conclusions
- Tight monetary policy is associated with a higher probability that postcrisis undervaluation is reversed via nominal appreciation rather than via higher inflation.
- The presence of a contemporaneous banking crisis alters robustness: tight monetary policy may not reliably produce the same exchange rate reversal outcome across specifications.

### Data, Scope, and Methods (as described)
- Sample: currency crises in 80 countries.
- Time period: 1980-98.
- Paper length: 32 pages.
- Publication date: March 1, 1999.
- Series and identifiers:
  - Series: Working Paper No. 1999/042
  - Volume: 1999
  - Issue: 042
  - Stock No: WPIEA0421999
  - DOI: https://doi.org/10.5089/9781451846195.001
  - ISBN: 9781451846195
  - ISSN: 1018-5941

### Policy Implications and Considerations
- Tight monetary policy can be an effective tool to stabilize the exchange rate after a currency crisis by promoting nominal appreciation rather than fueling inflation.
- Policymakers should exercise caution when banking sector problems coexist with a currency crisis, as the effectiveness of monetary tightening on exchange rate stabilization may be weakened or specification-dependent.

*Source: IMF Working Paper — “Does Monetary Policy Stabilize the Exchange Rate Following a Currency Crisis?” by Ilan Goldfajn and Poonam Gupta, March 1, 1999.*

---

## Content in this bundle

- **Does Monetary Policy Stabilize the Exchange Rate Following a Currency Crisis? - WP/99/42**
  - [Does Monetary Policy Stabilize the Exchange Rate Following a Currency Crisis? - WP/99/42 (Markdown version)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/1999/_wp9942.pdf.md){rel="alternate" type="text/markdown"}
  - [Does Monetary Policy Stabilize the Exchange Rate Following a Currency Crisis? - WP/99/42 (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/1999/_wp9942.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/does-monetary-policy-stabilize-the-exchange-rate-following-a-currency-crisis-2932_