Macroeconomic Implications of Real Exchange Rate Targeting in Developing Countries

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

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:
https://doi.org/10.5089/9781451844702.001
Issue:
029
Series:
Working Paper No. 1991/029
Stock No:
WPIEA0291991
ISBN:
9781451844702
ISSN:
1018-5941

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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.

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