Policy Assignment Strategies with Somewhat Flexible Exchange Rates Policy

International Monetary Fund

No 1988/040, IMF Working Papers from International Monetary Fund

Abstract: The choice of assigning monetary or fiscal policy to external balance is complicated when the authorities are concerned with both the current account balance and the exchange rate. A strategy of using monetary policy to control the current account via the exchange rate may fail, because the relative-price effect is likely to be offset by the effect of monetary policy on aggregate demand. An alternative strategy, in which fiscal policy is assigned to limit shifts in the current account while the exchange rate is not directly targeted, may have a better chance of having favorable effects on both variables.

Keywords: WP; exchange rate; monetary policy; fiscal policy setting; current account objective; current account stability; exchange rate movement; current account position; current account adjustment; monetary policy adjustment; Exchange rates; Current account balance; Current account; Real exchange rates; Global (search for similar items in EconPapers)
Pages: 40
Date: 1988-01-01
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Citations: View citations in EconPapers (2)

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