Post by Fernando M Gonalves on Jan 14, 2009 6:00:58 GMT 4
Accumulating Foreign Reserves Under Floating Exchange Rates
Fernando M. Gonçalves
April 2008
IMF Working Paper No. 08/96
Abstract:
Official accumulation of foreign reserves may be perceived as interventions to influence the exchange rate, undermining the credibility of floating exchange rates and inflation targets. This paper develops a theoretical framework to study the interaction between reserve accumulation and monetary policy. The model uncovers a trade-off between the speed of reserve accumulation and anti-inflationary credibility. Under reasonable assumptions, delegation of intervention and monetary policy decisions to separate government agencies allows faster reserve accumulation, while centralization of these decisions results in a more stable economy. The analysis underscores the importance of rather overlooked institutional features of policymaking in open economies.
papers.ssrn.com/sol3/Delivery.cfm/wp0896.pdf?abstractid=1153760&mirid=3
Fernando M. Gonçalves
April 2008
IMF Working Paper No. 08/96
Abstract:
Official accumulation of foreign reserves may be perceived as interventions to influence the exchange rate, undermining the credibility of floating exchange rates and inflation targets. This paper develops a theoretical framework to study the interaction between reserve accumulation and monetary policy. The model uncovers a trade-off between the speed of reserve accumulation and anti-inflationary credibility. Under reasonable assumptions, delegation of intervention and monetary policy decisions to separate government agencies allows faster reserve accumulation, while centralization of these decisions results in a more stable economy. The analysis underscores the importance of rather overlooked institutional features of policymaking in open economies.
papers.ssrn.com/sol3/Delivery.cfm/wp0896.pdf?abstractid=1153760&mirid=3