Exchange Rate Management: Intertemporal Tradoffs

26 Pages Posted: 23 Apr 2004

See all articles by Elhanan Helpman

Elhanan Helpman

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Date Written: March 1985

Abstract

The management of the exchange rate is possible only if the government pursues a monetary-fiscal policy mix which is consistent with its exchange rate targets. In this paper with uncertainty concerning the length of individual life the real consequences of exchange rate management depend on the precise time pattern of the accompanying policies. We look at a stylized example of disinflation by means of exchange rate targetting with an initial overvalued currency and a delayed accompanying absorbtion policy. The result will be an intergenerational redistribution of welfare whereby spending rises during the initial period and falls during later periods, while the external debt rises in all periods.

Suggested Citation

Helpman, Elhanan and Razin, Assaf, Exchange Rate Management: Intertemporal Tradoffs (March 1985). NBER Working Paper No. w1590. Available at SSRN: https://ssrn.com/abstract=336330

Elhanan Helpman (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States
617-495-4690 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
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Centre for Economic Policy Research (CEPR)

London
United Kingdom

Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 640 7303 (Phone)
+972 3 640 9908 (Fax)

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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