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Real Exchange Rate Targeting Under Imperfect Asset Substitutability

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  • José Saúl Lizondo

Abstract

This paper presents a model of an economy that uses nominal exchange rate policy to keep the real exchange rate constant at a certain target level, under imperfect asset substitutability. The paper discusses the determinants of inflation under such a policy, and examines the consequences of exogenous and policy-induced shocks on inflation, the external accounts, and the fiscal accounts. The shocks considered include changes in the real exchange rate target, changes in fiscal policy, changes in foreign interest rates, and open market sales of public sector domestic bonds.

Suggested Citation

  • José Saúl Lizondo, 1993. "Real Exchange Rate Targeting Under Imperfect Asset Substitutability," IMF Working Papers 93/38, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:93/38
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    Cited by:

    1. Calvo, Guillermo A. & Reinhart, Carmen M. & Vegh, Carlos A., 1995. "Targeting the real exchange rate: theory and evidence," Journal of Development Economics, Elsevier, vol. 47(1), pages 97-133, June.
    2. Carmen M Reinhart & Guillermo A Calvo & Carlos Vegh, 1994. "La Tasa De Cambio Real Como Meta De Política Teoría Y Evidencia," Revista ESPE - ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, vol. 13(25), pages 7-50, June.
    3. Erol, Turan & Van Wijnbergen, Sweder, 1997. "Real exchange rate targeting and inflation in Turkey: An empirical analysis with policy credibility," World Development, Elsevier, vol. 25(10), pages 1717-1730, October.

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