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Exchange Rate Appreciation As a Signal of a New Policy Stance
Author:
Mr. Georg Winckler null

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Series:
IMF Working Papers
Volume/Issue:
Volume 1991: Issue 032
Language:
English
Publication Date:
01 Mar 1991
DOI:
https://doi.org/10.5089/9781451845068.001
ISBN:
9781451845068
ISSN:
1018-5941
Pages:
20
Keywords:
WP; utility function; exchange rate commitment; expectation of the union; full employment; exchange rate expectation; central bank act; exchange rate appreciation; Exchange rates; Labor unions; Real exchange rates; Wages; Wage adjustments; Europe; Western Europe
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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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It is shown in a game theoretic framework that it may pay off to signal a “conservative” policy stance--giving a high priority to price stability--by appreciating the exchange rate. Such an appreciation demonstrates to domestic producers and more precisely to the trade union that the new policy stance is meant to be serious. An example explores the welfare implication for the policy maker and the trade union. The empirical background of the paper refers to the monetary policy in Europe. It explains the occurrence of exchange rate commitments to the deutsche mark, with appreciated rates.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund