Facing electoral uncertainty, a government chooses its exchange regime in a trade-off among three incentives: (i) tying the hands of its opponent should it lose the election; (ii) facilitating its own future policy implementation should it win the election; and (iii) increasing its chance of reelection.
Real exchange rate rules have recently been adopted by a number of developing countries as a means of maintaining international competitiveness in the face of high domestic rates of inflation. The conventional wisdom holds that such rules will quickly lead to hyperinflation, an outcome that is not consistent with the experience of at least some of the countries that have adopted them. This paper shows how real exchange rate rules can easily have destabilizing effects on the inflation rate without leading to hyperinflation, and shows that such effects are difficult to overcome even when supplemented by an appropriate money-supply rule.
International Monetary Fund. Independent Evaluation Office
Since the 2021 Spring Meetings, the IEO has concluded its evaluation on Growth and Adjustment in IMF-Supported Programs and has made significant headway in three other evaluations. Good progress has also been made in following up on past IEO evaluations. However, it was disappointing that the recent implementation plan aimed at strengthening IMF collaboration with the World Bank on climate and other macro-structural issues did not include a commitment to one key Board-endorsed recommendation, specifically to develop a concrete framework for Bank-Fund collaboration on climate issues.
International Monetary Fund. Legal Dept., International Monetary Fund. Monetary and Capital Markets Department, International Monetary Fund. Strategy, Policy, &, Review Department, and International Monetary Fund. Research Dept.