The issue of whether the money supply can serve as a nominal anchor for the domestic price level under real exchange rate targeting is examined. When capital controls are perfect, so that there is complete separation between official and unofficial foreign exchange markets, the domestic...

The aggregate supply function developed by Lucas (1973) predicts that the short-run effects of monetary disturbances on real output are negatively related to the variability of such disturbances. This paper assesses the empirical relevance of the Lucas supply function for a large sample of...

It is often argued that the parallel market premium is a useful indicator of real exchange rate misalignment in developing countries. The empirical evidence, however, does not suggest a robust correlation between these two endogenous variables that is independent of the nature of economic shocks...

The growing literature on whether devaluation has contractionary effects on output in developing countries is evaluated. The paper explores links between the exchange rate and real output within a unified, fairly general analytical framework that incorporates several of the developing country...

A small analytical model is developed to explore the relationship between the dynamics of macroeconomic adjustment and the timing of the implementation of an adjustment program featuring a nominal devaluation. The effects of postponing adjustment depend on the source of the original shock. For...

A small macroeconomic model based on familiar theoretical considerations is developed and estimated using data from 31 developing countries. Efficient estimation techniques are used to control for country heterogeneity under the assumption of rational expectations. The estimates and the test...

In many developing countries the financial system is characterized by the absence of organized markets for securities and equities, by capital controls, and by legal ceilings on bank borrowing and lending rates--a situation that gives rise to parallel markets for foreign exchange and informal...

Pakistan has experienced high fiscal deficits for over two decades. The accumulation of debt over this period implies that a substantial adjustment will be required to attain a sustainable fiscal position over the medium term. By simulating an estimated macroeconomic model for Pakistan, this...

The macroeconomic effects of a variety of exogenous and policy-induced real disturbances are examined under the assumption that the authorities target the level of the real exchange rate. We first discuss the implications--particularly for inflation and the current account--of targeting the rate...