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Nominal Anchor Exchange Rate Policies as a Domestic Distortion

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  • Anne O. Krueger

Abstract

This paper analyzes a nominal anchor exchange rate policy as a domestic distortion, in the tradition of international trade theory. It is shown that, in addition to the problems of sustainability and exit pinpointed in the exchange rate literature, a nominal anchor exchange rate policy, while in force, drives a wedge between the domestic and the international intertemporal marginal rates of substitution. The welfare cost of the Mexican use of the nominal anchor exchange rate policy prior to December 1994 is then estimated.

Suggested Citation

  • Anne O. Krueger, 1997. "Nominal Anchor Exchange Rate Policies as a Domestic Distortion," NBER Working Papers 5968, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:5968
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    1. Calvo, Guillermo A. & Reinhart, Carmen M. & Vegh, Carlos A., 1995. "Targeting the real exchange rate: theory and evidence," Journal of Development Economics, Elsevier, vol. 47(1), pages 97-133, June.
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    10. Sebastian Edwards, 1996. "A Tale of Two Crises: Chile and Mexico," NBER Working Papers 5794, National Bureau of Economic Research, Inc.
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    Cited by:

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    2. Rolando H. Castañeda, 2003. "The Cuban External Sector in 1989-2002: Some Observations on Achievements, Failures and Challenges," Annual Proceedings, The Association for the Study of the Cuban Economy, vol. 13.
    3. Ronald I. McKinnon, 2002. "Limiting Moral Hazard and Reducing Risk in International Capital Flows: The Choice of an Exchange Rate Regime," The ANNALS of the American Academy of Political and Social Science, , vol. 579(1), pages 200-218, January.
    4. Kolozsi Pal Peter, 2011. "Trade liberalization and exchange rate policy : possibilities and constraints in a small open economy : the case of Hungary [Libéralisation commerciale et politique de change : possibilités et cont," SciencePo Working papers Main tel-04052596, HAL.
    5. Drabek, Zdenek & Brada, Josef C., 1998. "Exchange Rate Regimes and the Stability of Trade Policy in Transition Economies," Journal of Comparative Economics, Elsevier, vol. 26(4), pages 642-668, December.
    6. Robertson, Raymond, 2003. "Exchange rates and relative wages: evidence from Mexico," The North American Journal of Economics and Finance, Elsevier, vol. 14(1), pages 25-48, March.
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    8. John Anyanwu & Andrew E. O. Erhijakpor, 2007. "Working Paper 91 - Health Expenditures and Health Outcomes in Africa," Working Paper Series 226, African Development Bank.
    9. Sanjaya Acharya, 2014. "Trade liberalisation in fixed and flexible exchange rate regimes: a CGE analysis for Nepal," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 17(2), pages 129-148, June.
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    12. Islam, Iyanatul, & Ahmed, Ishraq. & Roy, Rathin. & Ramos, Raquel., 2012. "Macroeconomic policy advice and the Article IV consultations a development perspective," ILO Working Papers 994783713402676, International Labour Organization.
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    16. Debapriya Bhattacharya & Shouro Dasgupta & Dwitiya Jawher Neethi, 2012. "Assessing the Impact of the Global Economic and Financial Crisis on Bangladesh: An Intervention Analysis," CPD Working Paper 97, Centre for Policy Dialogue (CPD).
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