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On the Use of Monetary Policy for Moderating Exchange Rate Movements

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Authors
Levin, Jay H.
Issue Date
1992
Publisher
Seoul Journal of Economics
Citation
Seoul Journal of Economics 5 (No. 1 1992): 75-88
Keywords
lean against the wind; international Monetary Fund; exchange rate movements
Abstract
This paper considers the effects of monetary policy undertaken to moderate exchange rate movements under a managed floating exchange rate system. It is motivated by evidence that central banks have at times undertaken such a policy. Using the Dornbusch model as the analytical framework, I consider an initial monetary shock to the economy followed by an attempt by the central bank to use the rate of monetary growth to "lean against the wind." It turns out that monetary intervention increases the initial degree of exchange rate overshooting, increases the deviations of the exchange rate from its new longrun equilibrium level, and intensifies exchange rate movements.
ISSN
1225-0279
Language
English
URI
http://hdl.handle.net/10371/946
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College of Social Sciences (사회과학대학)Institute of Economics Research (경제연구소)Seoul Journal of EconomicsSeoul Journal of Economics vol.05(1) (Spring 1992)
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