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Monetary Policy Interactions under Managed Exchange Rates

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  • Giavazzi, Francesco
  • Giovannini, Alberto

Abstract

This paper studies monetary policy games in a two-period Mundell-Fleming model, under a regime of managed exchange rates. A regime of managed exchange rates is defined as one where exchange rates are pegged but bilateral parities can be changed from time to time. The paper argues that such a regime is the most appropriate description of the Bretton Woods system and many arrangements currently in existence. We show that Cournot-Nash equilibria under managed rates differ significantly from those under fixed or floating rates. Under managed rates the world-wide efficiency losses from lack of coordination are not equally shared by all countries.

Suggested Citation

  • Giavazzi, Francesco & Giovannini, Alberto, 1986. "Monetary Policy Interactions under Managed Exchange Rates," CEPR Discussion Papers 123, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:123
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    Cited by:

    1. van der Ploeg, F., 1989. "Monetary interdependence under alternative exchange-rate regimes," Discussion Paper 1989-20, Tilburg University, Center for Economic Research.
    2. Dale Henderson & Ning Zhu, 1990. "Uncertainty and the choice of instruments in a two-country monetary-policy game," Open Economies Review, Springer, vol. 1(1), pages 39-65, February.
    3. Francesco Giavazzi & Alberto Giovannini, 1988. "Modèles du SME : l'Europe n'est-elle qu'une zone deutsche mark ?," Revue Économique, Programme National Persée, vol. 39(3), pages 641-666.
    4. Carraro, Carlo & Giavazzi, Francesco, 1988. "Can International Policy Coordination Really Be Counterproductive?," CEPR Discussion Papers 258, Centre for Economic Policy Research.
    5. René Cabral-Torres, "undated". "Monetary and Fiscal Policy Coordination," Discussion Papers 05/28, Department of Economics, University of York.

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