Real Exchange Rate Targeting Under Imperfect Asset Substitutability

José Saúl Lizondo

No 1993/038, IMF Working Papers from International Monetary Fund

Abstract: This paper presents a model of an economy that uses nominal exchange rate policy to keep the real exchange rate constant at a certain target level, under imperfect asset substitutability. The paper discusses the determinants of inflation under such a policy, and examines the consequences of exogenous and policy-induced shocks on inflation, the external accounts, and the fiscal accounts. The shocks considered include changes in the real exchange rate target, changes in fiscal policy, changes in foreign interest rates, and open market sales of public sector domestic bonds.

Keywords: WP; rate of inflation; private sector demand; traded goods; central bank (search for similar items in EconPapers)
Pages: 30
Date: 1993-04-01
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Citations: View citations in EconPapers (5)

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