Targeting the real exchange rate: theory and evidence
AbstractThis paper presents a theoretical and empirical analysis of policies aimed at setting a more depreciated level of the real exchange rate. An intertemporal optimizing model suggests that, in the absence of changes in fiscal policy, a more depreciated level of the real exchange can only be attained temporarily. This can be achieved by means of higher inflation and/or higher real interest rates, depending on the degree of capital mobility. Evidence for Brazil, Chile, and Colombia supports the model's prediction that undervalued real exchange rates are associated with higher inflation.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Development Economics.
Volume (Year): 47 (1995)
Issue (Month): 1 (June)
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Web page: http://www.elsevier.com/locate/devec
Other versions of this item:
- Reinhart, Carmen & Calvo, Guillermo & Vegh, Carlos, 1994. "Targeting the real exchange rate: Theory and evidence," MPRA Paper 13412, University Library of Munich, Germany.
- F30 - International Economics - - International Finance - - - General
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
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