Bad Dreams Under Alternative Anchors : Are the Consequences Different? /
Using a simple model, this paper shows how a strict monetary rule exhibits characteristics similar to those of an exchange rate anchor, in terms of a lack of robustness in the presence of adverse expectations ('bad dreams'). More specifically, as an anticipated devaluation under an exchang...
| Main Author: | |
|---|---|
| Other Authors: | |
| Format: | Journal |
| Language: | English |
| Published: |
Washington, D.C. :
International Monetary Fund,
2000.
|
| Series: | IMF Working Papers; Working Paper ;
No. 2000/020 |
| Online Access: | Full text available on IMF |
| Summary: | Using a simple model, this paper shows how a strict monetary rule exhibits characteristics similar to those of an exchange rate anchor, in terms of a lack of robustness in the presence of adverse expectations ('bad dreams'). More specifically, as an anticipated devaluation under an exchange rate rule leads to well-known contractionary effects, an anticipated increase in the money stock under a monetary rule, though initially expansionary, becomes contractionary when these expectations are not validated. This suggests that much of the criticism of an exchange rate anchor implicitly considers not another rule but rather, discretion as the alternative. |
|---|---|
| Item Description: | <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required |
| Physical Description: | 1 online resource (23 pages) |
| Format: | Mode of access: Internet |
| ISSN: | 1018-5941 |
| Access: | Electronic access restricted to authorized BRAC University faculty, staff and students |