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Monetary Policy Interactions under Managed Exchange Rates


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  • Giavazzi, Francesco
  • Giovannini, Alberto


This paper studies monetary policy games in a two-period Mundell-Fleming model, under a regime of managed exchange rates. A regime of managed exchange rates is defined as one where exchange rates are pegged but bilateral parities can be changed from time to time. The paper argues that such a regime is the most appropriate description of the Bretton Woods system and many arrangements currently in existence. We show that Cournot-Nash equilibria under managed rates differ significantly from those under fixed or floating rates. Under managed rates the world-wide efficiency losses from lack of coordination are not equally shared by all countries.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 123.

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Date of creation: Aug 1986
Date of revision:
Handle: RePEc:cpr:ceprdp:123

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Keywords: Exchange Rates; Monetary Policy; Mundell-Fleming Model;

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Cited by:
  1. Carrera, Jorge Eduardo, 1995. "Efectos precio y comercio en un area monetaria asimetrica
    [Price and trade effects in an asymmetric monetary area]
    ," MPRA Paper 7844, University Library of Munich, Germany.
  2. J. M. C. Santos Silva & Silvana Tenreyro, 2010. "Currency Unions in Prospect and Retrospect," CEP Discussion Papers dp0986, Centre for Economic Performance, LSE.
  3. Carraro, Carlo & Giavazzi, Francesco, 1988. "Can International Policy Coordination Really Be Counterproductive?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 258, C.E.P.R. Discussion Papers.
  4. Giorgio Gomel, 2001. "Implications of the Euro for International Monetary Relations: A Pole of Attraction in Europe and in the Mediterranean Basin," EUI-RSCAS Working Papers, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS) 34, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  5. George Alogoskoufis & Richard Portes, 1990. "International Costs and Benefits from EMU," NBER Working Papers 3384, National Bureau of Economic Research, Inc.
  6. René Cabral-Torres, . "Monetary and Fiscal Policy Coordination," Discussion Papers, Department of Economics, University of York 05/28, Department of Economics, University of York.
  7. Ploeg, F. van der, 1989. "Monetary interdependence under alternative exchange-rate regimes," Discussion Paper, Tilburg University, Center for Economic Research 1989-20, Tilburg University, Center for Economic Research.
  8. Ploeg, F. van der, 1990. "Macroeconomic policy coordination during the various phases of economic and monetary integration in Europe," Discussion Paper, Tilburg University, Center for Economic Research 1990-61, Tilburg University, Center for Economic Research.
  9. Jochem, Axel, 1999. "Währungspolitische Interdependenz der EU-Beitrittskandidaten und die Wahl eines geeigneten Wechselkurssystems: Beitrag für den Projektbericht: Währungspolitische Optionen für die mittel- und osteuropä," Working Papers in Economics 1999,5, Universität der Bundeswehr München, Economic Research Group.
  10. Loukas Stemitsiotis, 1999. "L’euro et les pays partenaires méditerranéens," Revue d'Économie Financière, Programme National Persée, Programme National Persée, vol. 52(2), pages 75-97.
  11. Dale W. Henderson & Ning S. Zhu, 1995. "Uncertainty, instrument choice, and the uniqueness of Nash equilibrium: microeconomic and macroeconomic examples," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 526, Board of Governors of the Federal Reserve System (U.S.).
  12. Dale Henderson & Ning Zhu, 1990. "Uncertainty and the choice of instruments in a two-country monetary-policy game," Open Economies Review, Springer, Springer, vol. 1(1), pages 39-65, February.
  13. Ghironi, Fabio & Giavazzi, Francesco, 1998. "Currency areas, international monetary regimes, and the employment-inflation tradeoff," Journal of International Economics, Elsevier, vol. 45(2), pages 259-296, August.


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