Economics at your fingertips  

The inflationary consequences or real exchange rate targeting via accumulation of reserves

Kirill Sosunov and Oleg Zamulin
Authors registered in the RePEc Author Service: Kirill Sossounov ()

No 11/2006, BOFIT Discussion Papers from Bank of Finland, Institute for Economies in Transition

Abstract: The paper investigates the ability of monetary authorities to keep the real exchange rate undervalued over the long run by implementing a policy of accumulating foreign exchange reserves.We consider a model of a three-sector, small, open economy, where the central bank continuously purchases foreign currency reserves and compare them to Russian and Chinese economies in recent years.Both countries appear to pursue reserve accumulation policies.We find a clear trade-off between the steady state levels of the real exchange rate and inflation.After calibration, the model predicts an 8.5% real undervaluation of the Russian currency and a 13.7% undervaluation of the Chinese currency.Predicted inflation is found to match observed levels. Keywords: Real exchange rate targeting, foreign exchange reserves, Dutch disease. JEL classification: E52, F4

JEL-codes: E52 (search for similar items in EconPapers)
Date: 2006-10-31
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed

Downloads: (external link) (application/pdf)

Related works:
Working Paper: The Inflationary Consequences of Real Exchange Rate Targeting via Accumulation of Reserves (2006) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in BOFIT Discussion Papers from Bank of Finland, Institute for Economies in Transition Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland. Contact information at EDIRC.
Bibliographic data for series maintained by Minna Nyman ().

Page updated 2021-04-03
Handle: RePEc:bof:bofitp:2006_011