Real Exchange Rate Targeting under Capital Controls: Can Money Provide a Nominal Anchor?

Peter Montiel and Jonathan Ostry

IMF Staff Papers, 1992, vol. 39, issue 1, 58-78

Abstract: The issue of whether the money supply can serve as a nominal anchor for the domestic price level under real exchange rate targeting is examined. When capital controls are perfect, so that there is complete separation between official and unofficial foreign exchange markets, the domestic inflation rate can be stabilized, but only at the expense of a widening gap between official and parallel market exchange rates. When cross-transactions between the two markets are permitted, the domestic inflation rate cannot be stabilized either in the short run or the long run.

JEL-codes: E52 E61 F31 F41 (search for similar items in EconPapers)
Date: 1992
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Working Paper: Real Exchange Rate Targeting Under Capital Controls: Can Money Provide a Nominal Anchor? (1991)
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