Exchange Rate Dynamics Under Alternative Intervention Rule

Fidelina B. Nativida-Carlos
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Fidelina B. Nativida-Carlos: School of Economics, University of the Philippines

Philippine Review of Economics, 1992, vol. 29, issue 1, 1-9

Abstract: This paper examines the effects of two alternative intervention rules, the real exchange rate rule and the nominal exchange rate rule, on the behavior of a small open economy. These rules are found to differ in terms of the resulting exchange-rate jumps, deviations from purchasing power parity, and relationships between interest rate and exchange rate movements. Thus, even though these rules have the same steady-state effects, in the short run it makes a difference as to which rule is pursued since they lead to different exchange-rate jumps and hence to different paths that the economy will follow.

Date: 1992
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