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Walking the Tightrope of Real Exchange Rate Policy for Development: the Roles of Targets, Instruments, and Saving Rates

Arslan Razmi ()
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Arslan Razmi: Department of Economics, University of Massachusetts Amherst

UMASS Amherst Economics Working Papers from University of Massachusetts Amherst, Department of Economics

Abstract: Real exchange rate policy can potentially be utilized to target the trade balance and/or development through capital accumulation. However, the presence of distributional conflict and the trade-off between current and future trade imbalances complicates matters. I show that policy assignment matters for dynamic stability. Moreover, the relative saving behavior of different functional income groups influences dynamic behavior. The analysis sheds light on why real exchange rate policy may often be unfeasible, even if desirable from a developmental perspective.

JEL-codes: E63 F43 F63 O16 (search for similar items in EconPapers)
Date: 2019
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