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Exchange rate policies

Author

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  • Charles Engel

Abstract

Modern macroeconomic theory teaches us new lessons about exchange rates: Currency depreciations or appreciations that change the relative competitiveness of producers in different countries are undesirable from a global perspective if they lead to relative prices that do not reflect the true relative costs of production. From this standpoint, "external balance" does not mean that trade balances should be zero, but rather that global resources are allocated efficiently. The implications of this insight for the role of the exchange rate in monetary policy are explored here. Some of the traditional arguments for purely floating exchange rates are challenged by this approach. The paper also briefly considers sterilized intervention and comments on the role of international reserves.

Suggested Citation

  • Charles Engel, 2009. "Exchange rate policies," Staff Papers, Federal Reserve Bank of Dallas, issue Nov.
  • Handle: RePEc:fip:feddst:y:2009:i:nov:n:8
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    File URL: http://www.dallasfed.org/assets/documents/research/staff/staff0902.pdf
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    Other versions of this item:

    • Charles Engel, 2010. "Exchange rate policies," BIS Papers chapters,in: Bank for International Settlements (ed.), The international financial crisis and policy challenges in Asia and the Pacific, volume 52, pages 229-250 Bank for International Settlements.

    References listed on IDEAS

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    Cited by:

    1. Andrew Filardo & Hans Genberg, 2010. "Monetary Policy Strategies in the Asia and Pacific Region : What Way Forward?," Finance Working Papers 23011, East Asian Bureau of Economic Research.
    2. repec:agr:journl:v:2(602):y:2015:i:2(602):p:247-254 is not listed on IDEAS
    3. Yu HSING, 2016. "Determinants of the Hungarian forint/ US dollar exchange rate," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(606), S), pages 163-170, Spring.
    4. Eichengreen, Barry & Tong, Hui, 2015. "Effects of renminbi appreciation on foreign firms: The role of processing exports," Journal of Development Economics, Elsevier, vol. 116(C), pages 146-157.
    5. Yu HSING, 2015. "Short-run determinants of the USD/PLN exchange rate and policy implications," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(2(603), S), pages 247-254, Summer.

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