Does monetary policy stabilize the exchange rate following a currency crisis?

Ilan Goldfajn and Poonam Gupta

No 396, Textos para discussão from Department of Economics PUC-Rio (Brazil)

Abstract: This paper provides evidence on the relationship between monetary policy and the exchange rate in the aftermath of currency crises. It analyzes a large data set of currency crises in 80 countries in the period 1980 to 1998. The main question addressed is: can monetary policy significantly alter the probability of reversing the post-crisis undervaluation through nominal appreciation rather than higher inflation? We find that tight monetary policy facilitates the reversal of currency undervaluation through nominal appreciation rather than inflation. When the economy is also facing a banking crisis, depending on the specification, tight monetary policy may not have the same effect.

JEL-codes: E44 E63 (search for similar items in EconPapers)
Pages: 32 pages
Date: 1999-02
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Citations: View citations in EconPapers (44)

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Related works:
Journal Article: Does Monetary Policy Stabilize the Exchange Rate Following a Currency Crisis? (2003)
Working Paper: Does Monetary Policy Stabilize the Exchange Rate Following a Currency Crisis? (1999)
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Persistent link: https://EconPapers.repec.org/RePEc:rio:texdis:396

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