Targeting the real exchange rate: Theory and evidence

Carmen Reinhart, Guillermo Calvo and Carlos Vegh

MPRA Paper from University Library of Munich, Germany

Abstract: This paper presents a theoretical and empirical analysis of policies aimed at setting a more depreciated level of the real exchange rate. An intertemporal optimizing model suggests that, in the absence of changes in fiscal policy, a more depreciated level of the real exchange can only be attained temporarily. This can be achieved by means of higher inflation and/or higher real interest rates, depending on the degree of capital mobility. Evidence for Brazil, Chile, and Colombia supports the model's prediction that undervalued real exchange rates are associated with higher inflation.

Keywords: real; exchange; rate; international; interest; rates; capital; controls (search for similar items in EconPapers)
JEL-codes: E4 F30 (search for similar items in EconPapers)
Date: 1994
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Citations: View citations in EconPapers (23)

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Related works:
Journal Article: Targeting the real exchange rate: theory and evidence (1995)
Working Paper: Targeting the Real Exchange Rate: Theory and Evidence (1994)
Working Paper: Targeting the real exchange rate (1994)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:13412

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