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Morales, R. Armando.

Exchange Rate Uncertainty in Money-Based Stabilization Programs R. Armando Morales. [electronic resource] / R. Armando Morales. - Washington, D.C. : International Monetary Fund, 1998. - 1 online resource (18 p.) - IMF Working Papers; Working Paper ; No. 98/3 . - IMF Working Papers; Working Paper ; No. 98/3 .

Complementing the explanation provided by Calvo and Vegh (1994) for money-based stabilization programs, exchange rate uncertainty introduced to a particular version of the portfolio approach with imperfect competition in the banking system leads to a bias toward appreciation that is directly related to the divergence of expectations and that dampens the interaction between portfolio movements and the real exchange rate. Based on Frankel-Froot, uncertainty exists when the fundamental equilibrium real exchange rate is temporarily unknown in a foreign exchange market with two types of agents: 'parity-guessers,' who expect a jump to a reference parity level, and 'money-followers,' who expect nominal depreciation equal to the monetary rule.

ISBN: 1451841876 : 15.00 USD

ISSN: 1018-5941

Standard No.: 10.5089/9781451841879.001 doi

Subjects--Topical Terms:
Exchange Rate
Foreign Currency
Foreign Exchange
Inflation
Real Exchange Rate

Subjects--Geographic Terms:
Argentina
Dominican Republic