On the limits of real exchange-rate targeting under foreign exchange constraint

Bastian Eduardo F.

Chapter 6 in Foreign Exchange Constraint and Developing Economies, 2023, pp 124-148 from Edward Elgar Publishing

Abstract: This chapter develops a simple neo-Kaleckian open economy framework to analyse the short-term limits of real exchange rate targeting in a country facing foreign exchange constraint. For this purpose, it evaluates different policies and shocks, namely progressive wage policies, public consumption increases, terms of trade shocks and industrial policies. It shows that real exchange rate targeting under foreign exchange constraint limits real wage increases in the short term. Changes in this situation depend on good luck in the form of positive terms of trade shocks and/or good policy by means of industrial policies.

Keywords: Development Studies; Economics and Finance; Politics and Public Policy (search for similar items in EconPapers)
Date: 2023
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