Adjustment to Monetary Policy and Devaluation Under Two-Tier and Fixed Exchange Rate Regimes
AbstractThe purpose of this paper is to determine whether a two-tier exchange rate regime is more effective than a fixed rate regime in increasing acountry's ability to pursue an independent monetary policy in the short run.The analysis compares adjustment to a monetary policy and to a devaluation in the two exchange rate regimes in a portfolio model under imperfect asset substitutability. It is shown that the two policies have in the short run larger effects on interest rates under a two-tier regime. The duration of this effect, however, is longer under a fixed rate regime. The analysis is conducted for the case of static and rational expectations, demonstrating that the above results do not depend on the expectation mechanism.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1107.
Date of creation: Nov 1985
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- Aizenman, Joshua, 1985. "Adjustment to monetary policy and devaluation under two-tier and fixed exchange rate regimes," Journal of Development Economics, Elsevier, vol. 18(1), pages 153-169.
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