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Does Monetary Policy Stabilize the Exchange Rate Following a Currency Crisis? Ilan Goldfajn and Poonam Gupta Full Text of this Article (PDF 268K) Abstract: This paper provides evidence on the relationship
between monetary policy and the exchange rate in the aftermath of currency crises.
It analyzes a large dataset of currency crises in 80 countries for the period
1980–98. The main question addressed is whether monetary policy can increase
the probability of reversing a postcrisis undervaluation through nominal appreciation
rather than higher inflation. We find that tight monetary policy facilitates the
reversal of currency undervaluation through nominal appreciation. When the economy
also faces a banking crisis, the results are not robust and depend on the specification.
[JEL E44, E63] |
