Monetary Policy Interactions under Managed Exchange Rates

Francesco Giavazzi () and Alberto Giovannini

No 123, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper studies monetary policy games in a two-period Mundell-Fleming model, under a regime of managed exchange rates. A regime of managed exchange rates is defined as one where exchange rates are pegged but bilateral parities can be changed from time to time. The paper argues that such a regime is the most appropriate description of the Bretton Woods system and many arrangements currently in existence. We show that Cournot-Nash equilibria under managed rates differ significantly from those under fixed or floating rates. Under managed rates the world-wide efficiency losses from lack of coordination are not equally shared by all countries.

Keywords: Exchange Rates; Monetary Policy; Mundell-Fleming Model (search for similar items in EconPapers)
Date: 1986-08
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