Reinhart, Carmen and Calvo, Guillermo and Vegh, Carlos (1994): Targeting the real exchange rate: Theory and evidence.
Download (9Mb) | Preview
This paper presents a theoretical and empirical analysis of policies aimed at setting a more depreciated level of the real exchange rate. An intertemporal optimizing model suggests that, in the absence of changes in fiscal policy, a more depreciated level of the real exchange can only be attained temporarily. This can be achieved by means of higher inflation and/or higher real interest rates, depending on the degree of capital mobility. Evidence for Brazil, Chile, and Colombia supports the model's prediction that undervalued real exchange rates are associated with higher inflation.
|Item Type:||MPRA Paper|
|Original Title:||Targeting the real exchange rate: Theory and evidence|
|Keywords:||real exchange rate international interest rates capital controls|
|Subjects:||F - International Economics > F3 - International Finance > F30 - General
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates
|Depositing User:||Carmen Reinhart|
|Date Deposited:||15. Feb 2009 08:43|
|Last Modified:||12. Feb 2013 09:36|
Bacha, Edmar L., "Notes on the Brazilian experience with minidevaluations, 1968-1976", Journal of Development Economics 6, (1979), 463-481.
Beveridge, S., and C. Nelson, "A new approach to decomposition of economic time series into permanent and transitory components with particular attention to the measurement of the business cycle," Journal of Monetary Economics 7. (1981), 151-174.
Carrasquilla, A., "Estabilizacion macroeconomica y tasas de interes en Colombia: se agoto otro modelo?," mimeo, Banco de la Republica (Colombia), (1992).
Cochrane, J., "How big is the random walk in GNP?," Journal of Political Economy 96. (1988), 893-920.
Corbo, V., and A. Solimano, "Chile's experience with stabilization revisited," in M. Bruno, S. Fischer, E. Helpman, and N. Liviatan, eds., Lessons of economic stabilization and its aftermath. (Cambridge, Massachusetts: MIT Press, 1991), 57-91.
Edwards, S., Real exchange rates, devaluation, and adjustment. (Cambridge, Massachusetts: MIT Press, 1989). Edwards, S., "Comments on: Chile's experience with stabilization revisited", in M, Bruno, S. Fischer, E. Helpman, and N. Liviatan, eds., Lessons of economic stabilization and its aftermath (Cambridge, Massachusetts: MIT Press, 1991), 92-98.
French-Davis, R., "Exchange rate policies in Chile: the experience with the crawling-peg," in J. Williamson, ed., Exchange rate rules (New York: St. Martin's Press, 1981).
Fontaine, J.A., "La administracion de la politica monetaria en Chile, 1985- 1989," Cuadernos de Economia 28 (Chile), (1991), 109-129.
Guidotti, P.A., and C.A. Vegh, "Macroeconomic interdependence under capital controls: a two-country model of dual exchange rates," Journal of International Economics 32, (1992), 342-367.
Herrera, S., "Que tan grande es el desequilibrio cambiario en Colombia?," Ensayos sobre politica economica 20 (Banco de la Republica, Colombia), 145-174.
Johansen, S., "Statistical analysis of cointegrating vectors," Journal of Economic Dynamics and Control 12. (1988), 231-254. , "Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models," Econometrica 59, (1991), 1551-1580.
Lizondo, J.S., "Real exchange rate targets, nominal exchange rate policies, and inflation," Revista de Analisis Economico 6, (1991), 5-22.
, "Real exchange rate targeting under imperfect asset substitutability," Working Paper 93/38, IMF, (1993). Miller, S., "The Beveridge-Nelson decomposition of economic time series: another economical computational method," Journal of Monetary Economics 21, (1988), 141-142.
Montiel, P.J. and J.D. Ostry, "Macroeconomic implications of real exchange rate targeting in developing countries," IMF Staff Papers 38, (1991), 872-900.
9 t "Real exchange rate targeting under capital controls: can money provide a nominal anchor?," IMF Staff Papers 39, (1992), 58-78.
Obstfeld, M., "Capital controls, the dual exchange rate and devaluation," Journal of International Economics 20, (1986), 1-20.
Osterwald-Lenum, M., "A note with quantiles of the asymptotic distribution of the maximum likelihood cointegration rank test statistic," Oxford Bulletin of Economics and Statistics 54, (1992), 461-469.
Ostry, J. and C M . Reinhart, "Private saving and terms of trade shocks: evidence from developing countries/1 IMF Staff Papers 39, (1992), 495-517.
Reinhart, C M . and C.A. Vegh, "Nominal interest rates, consumption booms, and lack of credibility: a quantitative examination," mimeo, IMF, (1992).
Reinhart, C M . and C.A. Vegh, "Intertemporal consumption substitution and inflation stabilization: an empirical investigation," mimeo, IMF, (1993).
Roldos, J.E., "The terms of trade and the real exchange rate: theory an evidence," mimeo, University of Rochester, (1990).
Stock, J., and M. Watson, "A simple MLE of cointegrating vectors in higher order integrated systems," NBER Technical Working Paper 83, (1990).
Williamson, J., "The crawling peg in historical perspective," in J. Williamson, ed., Exchange rate rules (New York: St. Martin's Press, 1981). , ed., Exchange rate rules (New York: St. Martin's Press, 1981).