Uncovering Central Bank's Monetary Policy Objectives: Going Beyond Fear of Floating

39 Pages Posted: 15 Mar 2001

See all articles by Eduardo A. Morón

Eduardo A. Morón

Universidad del Pacifico, Peru - Department of Economics

Juan F. Castro

Universidad del Pacifico, Peru - Department of Economics

Date Written: October 2000

Abstract

Highly volatile exchange rate don't come cheap in economies with large liability dollarization ratios. Therefore, central banks do no follow a unique objective of price stability but its preferences include an implicit exchange rate objective. This gives us reasons to believe that the Peruvian exchange rate could be characterized as a phony floater. We found evidence suggesting an implicit defense on the level of the exchange rate. Going beyond the argument of fear of floating as a key explanation for this, we explore the reason behind the fear and the need of following certain objectives in liability dollarized economies.

Keywords: dollarization, floating exchange rates, central bank preferences, Peru

JEL Classification: C53, E52

Suggested Citation

Morón, Eduardo A. and Castro, Juan Francisco, Uncovering Central Bank's Monetary Policy Objectives: Going Beyond Fear of Floating (October 2000). Available at SSRN: https://ssrn.com/abstract=262188 or http://dx.doi.org/10.2139/ssrn.262188

Eduardo A. Morón (Contact Author)

Universidad del Pacifico, Peru - Department of Economics ( email )

Av. Salaverry 2020
Lima 11
Peru
511-219 0100 (Phone)
511-219 0135 (Fax)

Juan Francisco Castro

Universidad del Pacifico, Peru - Department of Economics ( email )

Av. Salaverry 2020
Lima
Peru

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