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Dual Exchange Markets and Intervention

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  • Haaparanta, Pertti

Abstract

It is argued that the theoretical literature on dual exchange markets has completely neglected the form of central bank intervention emphasized by the "classics". They advocated neutral intervention where the central bank sells in the capital market all foreign exchange it acquires from the current transactions. Current literature concentrates on the non-sterilized intervention. In a choice-theoretic framework it is shown that the form of intervention matters very much for the transmission of changes in foreign rate of interest and in terms of trade. On normative side it is shown that one can always design the dual exchange system in such a way that it is superior to the uniform fixed rate system.

Suggested Citation

  • Haaparanta, Pertti, "undated". "Dual Exchange Markets and Intervention," WIDER Working Papers 295591, United Nations University, World Institute for Development Economic Research (UNU-WIDER).
    • Handle: RePEc:ags:widerw:295591
    DOI: 10.22004/ag.econ.295591
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    References listed on IDEAS

    as
    1. Adams, Charles & Greenwood, Jeremy, 1985. "Dual exchange rate systems and capital controls: An investigation," Journal of International Economics, Elsevier, vol. 18(1-2), pages 43-63, February.
    2. Aizenman, Joshua, 1985. "Tariff liberalization policy and financial restrictions," Journal of International Economics, Elsevier, vol. 19(3-4), pages 241-255, November.
    3. Obstfeld, Maurice, 1986. "Capital controls, the dual exchange rate, and devaluation," Journal of International Economics, Elsevier, vol. 20(1-2), pages 1-20, February.
    4. Flood, Robert P., 1978. "Exchange rate expectations in dual exchange markets," Journal of International Economics, Elsevier, vol. 8(1), pages 65-77, February.
    5. repec:bla:econom:v:48:y:1981:i:189:p:61-70 is not listed on IDEAS
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