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Exchange Market Reform, Inflation, and Fiscal Deficits

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  • E. Murat Ucer
  • Pierre-Richard Agénor

Abstract

This paper examines the short- and long-run effects of exchange market reform in developing countries. The first part reviews the recent experience of Guyana, India, Jamaica, Kenya, Sierra Leone, and Sri Lanka with exchange market reform. The second part studies analytically the short-run dynamics of the parallel market premium and the money supply upon unification, when the post-reform regime consists of either a pure float or a managed float. The third part discusses the impact of unification on inflation and quasi-fiscal deficits, and identifies a variety of implicit taxes and subsidies that must be taken into account in assessing the longer-run effects of exchange market reform.

Suggested Citation

  • E. Murat Ucer & Pierre-Richard Agénor, 1995. "Exchange Market Reform, Inflation, and Fiscal Deficits," IMF Working Papers 1995/078, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1995/078
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    Cited by:

    1. Ndung'u, N.S., 1999. "Monetary and Exchange Rate Policy in Kenya," Papers 94, African Economic Research Consortium.
    2. Huizinga, H.P., 1996. "The Taxation Implicit in Two-Tiered Exchange Rate Systems," Other publications TiSEM e01fa769-96e8-4c5e-b9b5-a, Tilburg University, School of Economics and Management.
    3. Ms. Sònia Muñoz, 2007. "Central Bank Quasi-Fiscal Losses and High Inflation in Zimbabwe: A Note," IMF Working Papers 2007/098, International Monetary Fund.
    4. Ndlela, Thandinkosi, 2010. "Implications of real exchange rate misalignment in developing countries: theory, empirical evidence and application to growth performance in Zimbabwe," MPRA Paper 32710, University Library of Munich, Germany.
    5. Zhang, Zhichao, 2001. "Choosing an exchange rate regime during economic transition: The case of China," China Economic Review, Elsevier, vol. 12(2-3), pages 203-226.

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