IMF Working Papers Volume 1990 Issue 002: Financial Market Integration and Exchange Rate Policy (1990)

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Financial Market Integration and Exchange Rate Policy

Author:

Ms. Liliana Rojas-Suárez

Ms. Liliana Rojas-Suáreznull

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and

Mr. Donald J Mathieson

Mr. Donald J Mathieson
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Series:: IMF Working Papers

Volume/Issue:: Volume 1990: Issue 002

Language:: English

Publication Date:: 01 Jan 1990

DOI:: https://doi.org/10.5089/9781451930979.001

ISBN:: 9781451930979

ISSN:: 1018-5941

Pages:: 66

Keywords:: WP; credit rationing; monetary base; excess demand; financial system; risk premium; exchange market intervention; loan rate; intervention strategy; interest rate shock; goods market; intervention parameter; optimal exchange market intervention; exchange rate appreciation; Exchange rate policy; Exchange rates; Credit; Capital controls; Exchange rate arrangements; North America; Northern Europe

Legal-disclaimer:: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Series:: IMF Working Papers

Volume/Issue:: Volume 1990: Issue 002

Language:: English

Publication Date:: 01 Jan 1990

DOI:: https://doi.org/10.5089/9781451930979.001

ISBN:: 9781451930979

ISSN:: 1018-5941

Pages:: 66

Keywords:: WP; credit rationing; monetary base; excess demand; financial system; risk premium; exchange market intervention; loan rate; intervention strategy; interest rate shock; goods market; intervention parameter; optimal exchange market intervention; exchange rate appreciation; Exchange rate policy; Exchange rates; Credit; Capital controls; Exchange rate arrangements; North America; Northern Europe

Legal-disclaimer:: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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This paper examines how a country’s exchange rate policy should be adjusted when the degree of integration between domestic and external financial markets increases as a result of both domestic financial liberalization and the relaxation of capital controls. As the financial structure is opened and liberalized, the optimal scale of exchange market intervention changes as the relative importance of different domestic and foreign shocks for output and price stability is altered. Nonetheless, the response of the optimal degree of intervention to increases in the variances of the various domestic and foreign shocks is similar across all financial structures.

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IMF Working Papers

ISSN:: 1018-5941

Publisher:: International Monetary Fund

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