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)

Abstract

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Trade liberalization; adjustment; exchange rate policy; currency board; dollarization
• Subjects: F - International Economics > F1 - Trade > F13 - Trade Policy ; International Trade Organizations; F - International Economics > F1 - Trade > F16 - Trade and Labor Market Interactions; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics

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