Munich Personal RePEc Archive

Trade Liberalization with a Fixed Exchange Rate

Londero, Elio (1997): Trade Liberalization with a Fixed Exchange Rate. Published in: The International Trade Journal , Vol. 11, No. 2 (1997)

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When the nominal exchange rate is fixed (it cannot be devalued), trade liberalization would normally require a reduction in the absolute prices of non-traded goods in order to obtain the real depreciation needed. This paper analyzes the difficulties in achieving that real depreciation, and the effects of the persistent overvaluation that may result from labor market restrictions and capital inflows. Issues regarding stabilization cum trade liberalization, as well as sequencing with other reforms, are also explored.

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