Multiple Exchange Rates, Fiscal Deficits and Inflation Dynamics

May 1, 1996

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Format: Chicago

Vincent Bodart. Multiple Exchange Rates, Fiscal Deficits and Inflation Dynamics, (USA: International Monetary Fund, 1996) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The paper explores the inflationary implications of exchange rate regime reforms in a small open economy model combining the public finance view of inflation with multiple exchange markets. To account for the experience of many developing countries, the analysis focuses on transitions to multiple official exchange markets. In those countries, multiple exchange rates were often announced as temporary. The paper shows that the dynamic response of inflation to the reform markedly differ whether the announcement is credible or not. The paper also compares the response of inflation under a fixed crawl of nominal official rates and under the presence of policy rules aimed at reducing the spread between the official and parallel exchange rates.

Subject: Exchange rates, Inflation, Informal economy, Monetary base, Quasi-fiscal operations

Keywords: Central bank, Money stock, WP

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1996/056
Stock No:

WPIEA0561996
ISBN:

9781451968378
ISSN:

1018-5941

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