Real Exchange Rate Targeting Under Imperfect Asset Substitutability

Author/Editor:

José Saúl Lizondo

Publication Date:

April 1, 1993

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 1993/038

Subject:

Expenditure Inflation Public sector Real exchange rates Real interest rates

Notes:

Also published in Staff Papers, Vol. 40, No. 4, December 1993.

English

Publication Date:

April 1, 1993

ISBN/ISSN:

9781451845624/1018-5941

Stock No:

WPIEA0381993

Pages:

30

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