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Macroeconomic Implications of Real Exchange Rate Targeting in Developing Countries

Author

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  • Mr. Peter J Montiel
  • Mr. Jonathan David Ostry

Abstract

This paper analyzes the macroeconomic effects of a variety of exogenous and policy-induced real disturbances when the authorities target the level of the real exchange rate. It first discusses the implications--particularly for inflation and the current account--of targeting the rate at an “overdepreciated” level. The paper then examines the dynamic response of both output and inflation to a number of shocks. Further applications of the model, particularly as regards fiscal explanations of inflation, high-inflation plateaus, and money-based stabilization programs, are also considered.

Suggested Citation

  • Mr. Peter J Montiel & Mr. Jonathan David Ostry, 1991. "Macroeconomic Implications of Real Exchange Rate Targeting in Developing Countries," IMF Working Papers 1991/029, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1991/029
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    Keywords

    WP; exchange rate; rate of inflation; price level; excess demand; home goods market; real value; exchange rate rule; Real exchange rates; Inflation; Real wages; Terms of trade; Conventional peg;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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