Advanced Search
MyIDEAS: Login to save this paper or follow this series

External Shocks and Inflation in Developing Countries Under a Real Exchange Rate Rule


Author Info

  • Jonathan David Ostry
  • Peter Montiel


This paper shows that the response of inflation to external shocks is very different when the authorities target the real exchange rate than when they follow a fixed exchange rate or a preannounced crawling peg. Specifically, shocks that would have no effect on the steady-state inflation rate under a fixed exchange rate are either inflationary or deflationary under a real exchange rate rule. Moreover, irrespective of the degree of capital mobility, the authorities will find it difficult to mitigate the destabilizing effects of real shocks on the price level by using monetary policy, except possibly in the very short run.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL:
Download Restriction: no

Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 92/75.

as in new window
Length: 48
Date of creation: 01 Sep 1992
Date of revision:
Handle: RePEc:imf:imfwpa:92/75

Contact details of provider:
Postal: International Monetary Fund, Washington, DC USA
Phone: (202) 623-7000
Fax: (202) 623-4661
Web page:
More information through EDIRC

Order Information:

Related research

Keywords: Exchange rates; Developing countries; Real effective exchange rates; Economic models; exchange rate; inflation; real exchange rate; terms of trade; inflation rate; money supply; price level; rate of inflation; exchange rate rule; exchange rate targeting; foreign exchange; real value; nominal exchange rate; exchange rate target; real money; real interest rate; terms of trade shock; fixed exchange rate; inflation tax; steady-state inflation; real money supply; monetary policy; exchange rate rules; exchange rate targets; fixed nominal exchange rate; increase in inflation; real output; nominal interest rate; real wages; exchange rate policy; official exchange rate; real interest rates; fixed exchange rates; rates of inflation; effective exchange rates; foreign exchange market; real exchange rates; foreign exchange reserves; dual exchange rates; money stock; exchange markets; real variables; high rates of inflation; country exchange rate; inflationary consequences; currency substitution; price inflation; exchange rate dynamics; exchange rate policies; effective exchange rate; effect of inflation; macroeconomic stability; lower inflation; real effective exchange rate; relative price; exchange reserves; rational expectations; foreign exchange transactions; exchange rate management; real exchange rate depreciation; foreign currency; exchange transactions; inflationary impact; exchange rate determination; low levels of inflation; terms of trade shocks; market exchange rate; rise in inflation; exchange rate depreciation; real exchange rate dynamics;


No references listed on IDEAS
You can help add them by filling out this form.



This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.


Access and download statistics


When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:92/75. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.