Exchange rate policy in developing countries
A distinction can be made between two approaches to exchange rate policy in developing countries. The"real targets"and the"nominal anchor"approach. Part I of this report gives an overview of the two approaches and the assumptions they imply. Part II expounds the"real targets"approach and its implications in some detail. This is really the approach that is now orthodox. Part III expounds the"nominal anchor"approach and its implications, and considers to what extent it might explain the low inflation experiences of the many countries where exchange rates have been (more or less) fixed for long periods. Part IV considers the implications of increasing capital mobility for exchange rate policy, and Part V has some conclusions for policy. The paper draws on examples of exchange rate policies and experiences of a group of seventeen developing countries.
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