Real Exchange Rate Targeting Under Imperfect Asset Substitutability

30 Pages Posted: 15 Feb 2006

See all articles by J. Saul Lizondo

J. Saul Lizondo

affiliation not provided to SSRN

Date Written: April 1993

Abstract

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.

JEL Classification: E52, E61, F31, F41

Suggested Citation

Lizondo, J. Saul, Real Exchange Rate Targeting Under Imperfect Asset Substitutability (April 1993). IMF Working Paper No. 93/38, Available at SSRN: https://ssrn.com/abstract=883490

J. Saul Lizondo (Contact Author)

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