Monetary policy under dual exchange rates
This paper finds that the introduction of dual exchange rates gives the monetary authority greater independence from external constraints than it would otherwise enjoy. The monetary authority is able to influence the level of aggregate demand in the short run and to sterilize the effects of temporary foreign distrubances. In addition, the paper finds that dual rates insulate the domestic economy fully from foreign interest rate changes but do not provide insulation from speculative disturbances.
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- Cumby, Robert E., 1983. "Trade credit, exchange controls, and monetary independence : Evidence from the United Kingdom," Journal of International Economics, Elsevier, vol. 14(1-2), pages 53-67, February.