In this paper the relationship between the demand for international reserves and exchange rate adjustments is empirically investigated for agroup of LDC's. It is shown that countries that have maintained a fixed exchange rate for a long period of time have a different demand function than...

The analysis focuses on the government budget constraint and the resolution of inconsistent implications of different policy instruments under that constraint. We show how, under floating exchange rates, external shocks or internal structural reforms may cause jumps in inflation and the exchange...

Recently a number of authors have criticized the role of devaluations in traditional stabilization programs. It has been argued that, contrary to the traditional view, devaluations are contractionary, and generate a decline in aggregate output. In spite of the renewed theoretical interest in the...

This paper discusses the use of nominal exchange rates as nominal anchors in stabilization programs. The first part deals with the dynamics of inflation in highly indexed economies. It is shown that credible exchange rate anchors will reduce the degree of inflationary inertia. However, if some...

As documented in recent studies, developing countries (classified by the IMF as floaters or managed floaters) are extremely reluctant to allow for large nominal exchange rate fluctuations. This 'fear of floating' is reflected in the fact that, in spite of being subject to larger shocks,...

This paper analyzes the role of real exchange rate (RER) policies in promoting economic development. Markets provide a suboptimal amount of investment in sectors characterized by learning spillovers. We show that a stable and competitive RER policy may correct for this externality and other...

This paper uses historical data from the Bretton Woods era to analyze the effectiveness of devaluation-based adjustment programs in the developing countries. Forty eight major devaluations undertaken between 1954 and 1971 are investigated in detail in an effort to understand the circumstances...

This paper investigates the potential impacts of the degree of divergence in open macroeconomic policies in the context of the trilemma hypothesis. Using an index that measures the relative policy divergence among the three trilemma policy choices, namely monetary independence, exchange rate...

The purpose of this paper is to investigate the potential role of monetary and real factors in explaining real exchange rate variability in developing countries. For this purpose two indexes of real effective exchange rate variability that measure short-term and long-term variability were...

The search for "growth-oriented adjustment programs" reflects a widespread malaise concerning IMF stabilization programs in countries suffering from external debt crises. A new orthodoxy is emerging from this search, which links recovery in the debtor countries to a shift to "outward-oriented"...