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| Author: | Giavazzi, F. Giovannini, A. |
| Title: | Monetary policy interactions under managed exchange rates. |
| Journal: | Economica
1989 : MAY, VOL. 56:222, p. 199-213 |
| Index terms: | MONETARY SYSTEM MONETARY POLICY EXCHANGE RATES |
| Language: | eng |
| Abstract: | Interactions in a two-country world are studied. One country sets its own money supply independently, but gives up control of the exchange rate; the other country sets the exchange rate independently, but gives up control of the domestic money stock. Equilibria under managed rates differ significantly from those under fixed or floating rates. The country that controls the exchange rate can generate deflation at the expense of the foreign country by changing the exchange rate. Example of a successful disinflation through an exchange rate appreciation is provided in a two-country world. Managed exchange rate regimes are indicated to tend to be unstable, since both countries find it desirable to affect the exchange rate. |
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