Real Exchange Rate Targeting and Macroeconomic Instability

Martín Uribe ()

No 9294, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using an optimizing model of a small open economy, this paper studies the macroeconomic effects of PPP rules whereby the government increases the devaluation rate when the real exchange rate defined as the price of tradables in terms of nontradables is below its long-run level and reduces the devaluation rate when the real exchange rate is above its long-run level. The paper shows that the mere existence of such a rule can generate aggregate fluctuations due to self-fulfilling revisions in expectations. The result is shown to obtain in both flexible- and sticky-price environments.

JEL-codes: F41 (search for similar items in EconPapers)
Date: 2002-10
Note: EFG IFM
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Published as Uribe, Martin. "Real Exchange Rate Targeting And Macroeconomic Instability," Journal of International Economics, 2003, v59(1,Jan), 137-159.

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Related works:
Journal Article: Real exchange rate targeting and macroeconomic instability (2003)
Working Paper: Real exchange rate targeting and macroeconomic instability (1995)
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