Macroeconomic Implications of Real Exchange Rate Targeting in Developing Countries

Peter Montiel and Jonathan Ostry

No 1991/029, IMF Working Papers from International Monetary Fund

Abstract: This paper analyzes the macroeconomic effects of a variety of exogenous and policy-induced real disturbances when the authorities target the level of the real exchange rate. It first discusses the implications--particularly for inflation and the current account--of targeting the rate at an “overdepreciated” level. The paper then examines the dynamic response of both output and inflation to a number of shocks. Further applications of the model, particularly as regards fiscal explanations of inflation, high-inflation plateaus, and money-based stabilization programs, are also considered.

Keywords: WP; exchange rate; rate of inflation; price level; excess demand; home goods market; real value; exchange rate rule; Real exchange rates; Inflation; Real wages; Terms of trade; Conventional peg (search for similar items in EconPapers)
Pages: 49
Date: 1991-03-01
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Citations: View citations in EconPapers (29)

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Journal Article: Macroeconomic Implications of Real Exchange Rate Targeting in Developing Countries (1991)
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