Macroeconomic Implications of Real Exchange Rate Targeting in Developing Countries
March 1, 1991
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Summary
This paper analyzes the macroeconomic effects of a variety of exogenous and policy-induced real disturbances when the authorities target the level of the real exchange rate. It first discusses the implications--particularly for inflation and the current account--of targeting the rate at an “overdepreciated” level. The paper then examines the dynamic response of both output and inflation to a number of shocks. Further applications of the model, particularly as regards fiscal explanations of inflation, high-inflation plateaus, and money-based stabilization programs, are also considered.
Subject: Conventional peg, Foreign exchange, Inflation, International trade, Labor, Prices, Real exchange rates, Real wages, Terms of trade
Keywords: Conventional peg, excess demand, exchange rate, exchange rate rule, home goods market, Inflation, price level, rate of inflation, Real exchange rates, real value, Real wages, Terms of trade, WP
Pages:
49
Volume:
1991
DOI:
Issue:
029
Series:
Working Paper No. 1991/029
Stock No:
WPIEA0291991
ISBN:
9781451844702
ISSN:
1018-5941
Notes
Analyzes the macroeconomic effects of a variety of exogenous and policy-induced real disturbances when the authorities target the level of the real exchange rate. Also published in Staff Papers, Vol. 38, No. 4, December 1991.
