Exchange Market Reform, Inflation, and Fiscal Deficits
August 1, 1995
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Summary
This paper examines the short- and long-run effects of exchange market reform in developing countries. The first part reviews the recent experience of Guyana, India, Jamaica, Kenya, Sierra Leone, and Sri Lanka with exchange market reform. The second part studies analytically the short-run dynamics of the parallel market premium and the money supply upon unification, when the post-reform regime consists of either a pure float or a managed float. The third part discusses the impact of unification on inflation and quasi-fiscal deficits, and identifies a variety of implicit taxes and subsidies that must be taken into account in assessing the longer-run effects of exchange market reform.
Subject: Currency markets, Exchange rate arrangements, Exchange rates, Financial markets, Foreign exchange, Multiple currency practices
Keywords: adjustable peg, cambio market, central bank, Currency markets, exchange market intervention, exchange market reform, exchange rate, Exchange rate arrangements, exchange rate system, Exchange rates, implementation of exchange market reform, market rate, money stock, Multiple currency practices, net effect of exchange market reform, parallel exchange rate, paralllel market premium, price volatility, Sub-Saharan Africa, WP
Pages:
62
Volume:
1995
DOI:
Issue:
078
Series:
Working Paper No. 1995/078
Stock No:
WPIEA0781995
ISBN:
9781451850062
ISSN:
1018-5941
