02079cas a2200253 a 4500 AALejournalIMF019135 230101c9999 xx r poo 0 0eng d 5.00 USD 9781498302913 1018-5941 BD-DhAAL BD-DhAAL El Hamiani Khatat, Mariam. Liquidity Management under Fixed Exchange Rate with Open Capital Account / Mariam El Hamiani Khatat, Romain Veyrune. Washington, D.C. : International Monetary Fund, 2019. 1 online resource (57 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper introduces a theoretical framework for liquidity management under fixed exchange rate arrangement, derived from the price-specie flow mechanism of David Hume. The framework highlights that the risk of short-term money market rates un-anchoring from the uncovered interest rate parity due to money and foreign exchange market frictions could jeopardize financial stability and market development. The paper then discusses operational solutions that stabilize money market rates close to the level implied by the Uncovered Interest Rate Parity (UIP). Liquidity management under fixed exchange rate with an open capital account presents specific challenges due to: (1) the larger liquidity shocks induced by foreign reserve swings that challenge the development of money markets; and (2) more complicated liquidity forecasts. The theoretical framework is empirically tested based on the estimate of 'offset' coefficients for Denmark and Hong Kong SAR. Mode of access: Internet Veyrune, Romain. IMF Working Papers; Working Paper ; No. 2019/058 Full text available on IMF http://elibrary.imf.org/view/journals/001/2019/058/001.2019.issue-058-en.xml IMF e-Library