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Nominal Anchor Exchange Rate Policies as a Domestic Distortion

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  • Anne O. Krueger
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    Abstract

    This paper analyzes a nominal anchor exchange rate policy as a domestic distortion, in the tradition of international trade theory. It is shown that, in addition to the problems of sustainability and exit pinpointed in the exchange rate literature, a nominal anchor exchange rate policy, while in force, drives a wedge between the domestic and the international intertemporal marginal rates of substitution. The welfare cost of the Mexican use of the nominal anchor exchange rate policy prior to December 1994 is then estimated.

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    File URL: http://www.nber.org/papers/w5968.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5968.

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    Date of creation: Mar 1997
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    Publication status: published as Development, Duality, and the International Economic Regime, Saxonhouse, Gary and T.N. Srinivasan, eds.: University of Michigan Press, January 1999.
    Handle: RePEc:nbr:nberwo:5968

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    1. Reinhart, Carmen & Calvo, Guillermo & Vegh, Carlos, 1994. "Targeting the real exchange rate: Theory and evidence," MPRA Paper 13412, University Library of Munich, Germany.
    2. Corbo, Vittorio & de Melo, Jaime, 1987. "Lessons from the Southern Cone Policy Reforms," World Bank Research Observer, World Bank Group, vol. 2(2), pages 111-42, July.
    3. Sebastian Edwards, 1996. "A Tale of Two Crises: Chile and Mexico," NBER Working Papers 5794, National Bureau of Economic Research, Inc.
    4. Sergio Rebelo & Carlos A. Vegh, 1995. "Real Effects of Exchange Rate-Based Stabilization: An Analysis of Competing Theories," NBER Working Papers 5197, National Bureau of Economic Research, Inc.
    5. Carlos A. Végh Gramont & Guillermo Calvo & Carmen Reinhart, 1994. "Targeting the Real Exchange Rate," IMF Working Papers 94/22, International Monetary Fund.
    6. John C. Hause, 1966. "The Welfare Costs of Disequilibrium Exchange Rates," Journal of Political Economy, University of Chicago Press, vol. 74, pages 333.
    7. Bruno, Michael & Fischer, Stanley, 1990. "Seigniorage, Operating Rules, and the High Inflation Trap," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 353-74, May.
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    Cited by:
    1. 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.
    2. John Anyanwu & Andrew E. O. Erhijakpor, 2007. "Working Paper 91 - Health Expenditures and Health Outcomes in Africa," Working Paper Series 226, African Development Bank.
    3. John Anyanwu & Andrew E. O. Erhijakpor, 2007. "Working Paper 92 - Education Expenditures and School Enrolment in Africa: Illustrations from Nigeria and Other SANE Countries," Working Paper Series 227, African Development Bank.
    4. Debapriya Bhattacharya & Shouro Dasgupta & Dwitiya Jawher Neethi, 2012. "Assessing the Impact of the Global Economic and Financial Crisis on Bangladesh: An Intervention Analysis," CPD Working Paper 97, Centre for Policy Dialogue (CPD).

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