Dual Exchange Markets and Intervention

Pertti Haaparanta

No 295591, WIDER Working Papers from United Nations University, World Institute for Development Economic Research (UNU-WIDER)

Abstract: It is argued that the theoretical literature on dual exchange markets has completely neglected the form of central bank intervention emphasized by the "classics". They advocated neutral intervention where the central bank sells in the capital market all foreign exchange it acquires from the current transactions. Current literature concentrates on the non-sterilized intervention. In a choice-theoretic framework it is shown that the form of intervention matters very much for the transmission of changes in foreign rate of interest and in terms of trade. On normative side it is shown that one can always design the dual exchange system in such a way that it is superior to the uniform fixed rate system.

Keywords: International; Development (search for similar items in EconPapers)
Pages: 36
New Economics Papers: this item is included in nep-cba and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:ags:widerw:295591

DOI: 10.22004/ag.econ.295591

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