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Walking the Tightrope of Real Exchange Rate Policy for Development : the Roles of Targets, Instruments, and Saving Rates

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  • Arslan Razmi

    (Department of Economics, University of Massachusetts Amherst)

Abstract

Real exchange rate policy can potentially be utilized to target the trade balance and/or development through capital accumulation. However, the presence of distributional conflict and the trade-off between current and future trade imbalances complicates matters. I show that policy assignment matters for dynamic stability. Moreover, the relative saving behavior of different functional income groups influences dynamic behavior. The analysis sheds light on why real exchange rate policy may often be unfeasible, even if desirable from a developmental perspective.

Suggested Citation

  • Arslan Razmi, 2019. "Walking the Tightrope of Real Exchange Rate Policy for Development : the Roles of Targets, Instruments, and Saving Rates," UMASS Amherst Economics Working Papers 2019-19, University of Massachusetts Amherst, Department of Economics.
    • Handle: RePEc:ums:papers:2019-19
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    File URL: https://scholarworks.umass.edu/econ_workingpaper/277/
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    More about this item

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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