IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

The Inflationary Consequences of Real Exchange Rate Targeting via Accumulation of Reserves

  • Kirill Sosunov

    (Higher School of Economics)

  • Oleg Zamulin

    ()

    (New Economic School)

The paper investigates the ability of monetary authorities to keep the real exchange rate undervalued over the long run by implementing a policy of accumulating foreign exchange reserves. We consider a model of a three-sector, small, open economy, where the central bank continuously purchases foreign currency reserves and compare the results to Russian and Chinese economies in recent years. Both countries appear to pursue reserve accumulation policies. We find a clear trade-o between the steady state levels of the real exchange rate and inflation. After calibration, the model predicts an 8.5% real undervaluation of the Russian currency and a 13.7% undervaluation of the Chinese currency. Predicted inflation is found to match observed levels.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cefir.ru/papers/WP82SosunovZamulin.pdf
Download Restriction: no

Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0082.

as
in new window

Length: 18 pages
Date of creation: Aug 2006
Date of revision:
Handle: RePEc:cfr:cefirw:w0082
Contact details of provider: Postal: 117418 Russia, Moscow, Nakhimovsky pr., 47, office 720
Phone: +7 (495) 105 50 02
Fax: +7 (495) 105 50 03
Web page: http://www.cefir.ru
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Carlos A. Végh Gramont & Guillermo Calvo & Carmen Reinhart, 1994. "Targeting the Real Exchange Rate; Theory and Evidence," IMF Working Papers 94/22, International Monetary Fund.
  2. Jeffrey Frankel, 2005. "On the renminbi," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 6(3), pages 16-21, October.
  3. Burstein, Ariel Tomas & Eichenbaum, Martin & Rebelo, Sérgio, 2005. "Modeling Exchange Rate Passthrough After Large Devaluations," CEPR Discussion Papers 5250, C.E.P.R. Discussion Papers.
  4. Dornbusch, Rudiger, 1982. "PPP Exchange-Rate Rules and Macroeconomic Stability," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 158-65, February.
  5. Stockman, Alan C & Tesar, Linda L, 1995. "Tastes and Technology in a Two-Country Model of the Business Cycle: Explaining International Comovements," American Economic Review, American Economic Association, vol. 85(1), pages 168-85, March.
  6. Ivanova Nadezhda, 2005. "Estimation of own- and cross-price elasticities of disaggregated imported and domestic goods in Russia," EERC Working Paper Series 05-13e, EERC Research Network, Russia and CIS.
  7. Franziska Ohnsorge & Nienke Oomes, 2005. "Money Demand and Inflation in Dollarized Economies; The Case of Russia," IMF Working Papers 05/144, International Monetary Fund.
  8. Michael P. Dooley & David Folkerts-Landau & Peter Garber, 2004. "The revived Bretton Woods system," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(4), pages 307-313.
  9. Sachs, J-D & Warner, A-M, 1995. "Natural Resource Abundance and Economic Growth," Papers 517a, Harvard - Institute for International Development.
  10. J. Saúl Lizondo, 1991. "Alternative Dual Exchange Market Regimes: Some Steady-State Comparisons," IMF Staff Papers, Palgrave Macmillan, vol. 38(3), pages 560-581, September.
  11. Peter J. Montiel & Jonathan D. Ostry, 1991. "Macroeconomic Implications of Real Exchange Rate Targeting in Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 38(4), pages 872-900, December.
  12. Rudiger Dornbusch, 1980. "Exchange Rate Rules and Macroeconomic Stability," NBER Working Papers 0473, National Bureau of Economic Research, Inc.
  13. Polterovich, Victor & Popov, Vladimir, 2003. "Accumulation of Foreign Exchange Reserves and Long Term Growth," MPRA Paper 20069, University Library of Munich, Germany.
  14. Rodrik, Dani, 1986. "Disequilibrium exchange rates as industrialization policy," Journal of Development Economics, Elsevier, vol. 23(1), pages 89-106, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cfr:cefirw:w0082. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julia Babich)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.