Does Monetary Policy Stabilize the Exchange Rate Following a Currency Crisis?
AbstractThis paper provides evidence on the relationship between monetary policy and the exchange rate in the aftermath of currency crises. It analyzes a large data set of currency crises in 80 countries for the period 1980-98. The main question addressed is: Can monetary policy increase the probability of reversing a postcrisis undervaluation through nominal appreciation rather than higher inflation? We find that tight monetary policy facilitates the reversal of currency undervaluation through nominal appreciation. When the economy also faces a banking crisis, the results are not robust: depending on the specification, tight monetary policies may not have the same effect.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 99/42.
Date of creation: 01 Mar 1999
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Other versions of this item:
- Ilan Goldfajn & Poonam Gupta, 2003. "Does Monetary Policy Stabilize the Exchange Rate Following a Currency Crisis?," IMF Staff Papers, Palgrave Macmillan, vol. 50(1), pages 5.
- Ilan Goldfajn & Poonam Gupta, 1999. "Does monetary policy stabilize the exchange rate following a currency crisis?," Textos para discussÃ£o 396, Department of Economics PUC-Rio (Brazil).
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
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- Barry Eichengreen, Andrew K. Rose, and Charles Wyplosz., 1995.
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