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What Happens When Countries Peg Their Exchange Rates? (The Real Side of Monetary Reforms)

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  • Rebelo, Sérgio

Abstract

There is a well-known set of empirical regularities that describe the experience of countries that peg their exchange rate as part of a macroeconomic adjustment programme. Following-the-peg economies tend to experience an increase in GDP, a large expansion of production in the non-tradable sector, a contraction in tradables production, a current account deterioration, an increase in the real wage, a reduction in unemployment, a sharp appreciation in the relative price of non-tradables and a boom in the real estate market. This paper discusses how the changes in the expected behaviour of fiscal policy that tend to be associated with the peg can contribute to explaining these facts.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1692.

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Date of creation: Aug 1997
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Handle: RePEc:cpr:ceprdp:1692

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Related research

Keywords: Fiscal Policy; Fixed Exchange Rates; Macroeconomic Stabilization; Real Exchange Rate;

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References

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  1. Alesina, Alberto F & Cohen, Gerald D & Roubini, Nouriel, 1992. "Macroeconomic Policy and Elections in OECD Democracies," CEPR Discussion Papers 608, C.E.P.R. Discussion Papers.
  2. Ades, Alberto F. & Kiguel, Miguel & Liviatan, Nissan, 1993. "Exchange rate based stabilization : tales from Europe and Latin America," Policy Research Working Paper Series 1087, The World Bank.
  3. Cohen, Gerald & Alesina, Alberto & Roubini, Nouriel, 1992. "Macroeconomic Policy and Elections in OECD Democracies," Scholarly Articles 4553023, Harvard University Department of Economics.
  4. Alberto Alesina & Gerald D. Cohen & Nouriel Roubini, 1992. "Macroeconomic Policy And Elections In Oecd Democracies," Economics and Politics, Wiley Blackwell, vol. 4(1), pages 1-30, 03.
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Cited by:
  1. Sergio Rebelo & Carlos A. Vegh, 1995. "Real Effects of Exchange-Rate-Based Stabilization: An Analysis of Competing Theories," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 125-188 National Bureau of Economic Research, Inc.
  2. Guillermo A. Calvo & Carlos A. Vegh, 1999. "Inflation Stabilization and BOP Crises in Developing Countries," NBER Working Papers 6925, National Bureau of Economic Research, Inc.
  3. Coto-Martinez, Javier & Dixon, Huw, 2003. "Profits, markups and entry: fiscal policy in an open economy," Journal of Economic Dynamics and Control, Elsevier, vol. 27(4), pages 573-597, February.
  4. Kamin, Steve B. & Rogers, John H., 2000. "Output and the real exchange rate in developing countries: an application to Mexico," Journal of Development Economics, Elsevier, vol. 61(1), pages 85-109, February.
  5. K K Tang, 1998. "Property Markets and Policies in an Intertemporal General Equilibrium Model," Departmental Working Papers 1999-01, The Australian National University, Arndt-Corden Department of Economics, revised Jan 1999.
  6. Stanley Fischer & Ratna Sahay & Carlos A. Vegh, 2002. "Modern Hyper- and High Inflations," NBER Working Papers 8930, National Bureau of Economic Research, Inc.
  7. Martin Uribe, 1997. "Habit formation and the comovement of prices and consumption during exchange-rate based stabilization programs," International Finance Discussion Papers 598, Board of Governors of the Federal Reserve System (U.S.).
  8. Javier Coto-Martinez & Juan C. Reboredo, 2004. "The Balassa-Samuelson effect in an imperfectly competitive economy: empirical evidence for G7 countries," Money Macro and Finance (MMF) Research Group Conference 2003 19, Money Macro and Finance Research Group.
  9. Dan Chin & Preston J. Miller, 1995. "Fixed vs. floating exchange rates: a dynamic general equilibrium analysis," Staff Report 194, Federal Reserve Bank of Minneapolis.
  10. Robertson, Raymond, 2003. "Exchange rates and relative wages: evidence from Mexico," The North American Journal of Economics and Finance, Elsevier, vol. 14(1), pages 25-48, March.
  11. Jung, Yongseung, 2000. "Nominal Rigidities, Monetary Policy and Exchange Rates in a Small Open Economy," Journal of Macroeconomics, Elsevier, vol. 22(4), pages 541-580, October.
  12. Sebastian Edwards, 1999. "Crisis Prevention: Lessons from Mexico and East Asia," NBER Working Papers 7233, National Bureau of Economic Research, Inc.

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