Abstract

http://ssrn.com/abstract=277307
 
 

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Citations (62)



 


 



Exchange Rates and Monetary Policy in Emerging Market Economies


Michael B. Devereux


University of British Columbia (UBC) - Department of Economics; Centre for Economic Policy Research (CEPR)

Philip R. Lane


Trinity College (Dublin) - Department of Economics; Centre for Economic Policy Research (CEPR)

July 2001

CEPR Discussion Paper No. 2874

Abstract:     
This Paper investigates the effects of exchange rate regimes and alternative monetary policy rules for an emerging market economy that is subject to a volatile external environment in the form of shocks to world interest rates and the terms of trade. In particular, we highlight the impact of financial frictions and the degree of exchange rate pass through in determining the relative performance of alternative regimes in stabilizing the economy in the face of external shocks. Our results are quite sharp. When exchange rate pass-through is high, a policy of non-traded goods inflation targeting does best in stabilizing the economy, and is better in welfare terms. When exchange rate pass-through is low, however, a policy of strict CPI inflation targeting is better. In all cases, a fixed exchange rate is undesirable. In addition, financial frictions have no implications for the ranking of alternative policy rules.

Number of Pages in PDF File: 47

Keywords: Monetary policy, pass-through, financial frictions, emerging markets

JEL Classification: E50, F30

working papers series





Date posted: August 1, 2001  

Suggested Citation

Devereux, Michael B. and Lane, Philip R., Exchange Rates and Monetary Policy in Emerging Market Economies (July 2001). CEPR Discussion Paper No. 2874. Available at SSRN: http://ssrn.com/abstract=277307

Contact Information

Michael B. Devereux (Contact Author)
University of British Columbia (UBC) - Department of Economics ( email )
997-1873 East Mall
Vancouver, BC V6T 1Z1
Canada
604-822-2542 (Phone)
604-946-6271 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Philip R. Lane
Trinity College (Dublin) - Department of Economics ( email )
Trinity College
Dublin 2
Ireland
+353 1 608 2259 (Phone)
+353 1 677 2503 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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