To better fulfill its crisis-prevention mandate, IMF surveillance needs to provide stronger incentives for countries to follow good policies and for markets to avoid boom-bust cycles in capital flows. To this end, surveillance should culminate in a summary public assessment of the quality of a...

This paper examines the relationship between temporary terms of trade shocks and household saving in developing countries. It is first shown that, from a theoretical standpoint, this relationship is ambiguous: private saving may rise or fall in response to a transitory terms of trade shock,...

Trade liberalization in the developing countries is frequently opposed on the grounds that, because it is likely to cause a deterioration in the external balance, it may not be a viable policy option for countries facing foreign exchange constraints. Recent literature suggests, however, an...

The relationship between current account developments and changes in the macroeconomic environment remains a key issue in open economy macroeconomics. This paper extends the standard intertemporal optimizing model of the current account to incorporate the effects of macroeconomic uncertainty on...

This paper shows that the response of inflation to external shocks is very different when the authorities target the real exchange rate than when they follow a fixed exchange rate or a preannounced crawling peg. Specifically, shocks that would have no effect on the steady-state inflation rate...

This paper examines the macroeconomic impact of tariffs. Existing theoretical models do not provide clear-cut predictions concerning the co-movement between unilateral tariff changes and a set of macroeconomic variables consisting of the real exchange rate, the trade balance, and the level of...

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

This paper analyzes the macroeconomic effects of a variety of exogenous and policy-induced real disturbances when the authorities target the level of the real exchange rate. It first discusses the implications particularly for inflation and the current account of targeting the rate at an...

The effects of government expenditures on interest rates, terms of trade, and real exchange rates are examined in a three-good (importables, exportables, nontradables), two-country, intertemporal, optimizing model. Temporary spending increases (on tradable or nontradable goods) may raise or...

Using a simple dependent-economy framework, this paper outlines the links between the equilibrium real exchange rate and some of its fundamental exogenous determinants, mainly terms of trade movements and commercial policy changes. Drawing on existing studies of trade flows in developing...