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Traditionally the choice of exchange rate regime has been seen as a second-best policy choice, which can be directed toward mitigating the distortionary effects of price or information rigidities. In this paradigm the optimal degree of exchange rate flexibility is found to depend of the source and nature of shocks hitting an economy. More recent literature views the exchange rate as a widely and frequently seen manifestation of government policy with careful exchange-rate management emerging as a tool that can enhance shaky policy credibility.

Foreign Exchange --- Development Planning and Policy: Trade Policy --- Factor Movement --- Foreign Exchange Policy --- International Monetary Arrangements and Institutions --- Currency --- Foreign exchange --- Exchange rate arrangements --- Exchange rate flexibility --- Exchange rate adjustments --- Exchange rate policy --- Conventional peg --- Germany

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Under free capital mobility, a high-inflation country pursuing a nonaccommodating exchange rate policy will have higher real interest rates than its lower-inflation trading partners as long as that policy is not credible. If the policy gains credibility prior to inflation convergence, the sign of the real interest rate differential may be reversed. Developments in interest rate differentials and capital and reserve flows suggest that Italy’s nonaccommodating exchange rate policy has become significantly more credible in 1989-90. As improved credibility further limits their monetary autonomy, the Italian authorities will have to rely more on fiscal and incomes policies to promote disinflation.

Banks and Banking --- Foreign Exchange --- Inflation --- Development Planning and Policy: Trade Policy --- Factor Movement --- Foreign Exchange Policy --- Interest Rates: Determination, Term Structure, and Effects --- Price Level --- Deflation --- Currency --- Foreign exchange --- Finance --- Macroeconomics --- Exchange rate policy --- Real interest rates --- Exchange rates --- Real exchange rates --- Financial services --- Prices --- Interest rates --- Italy

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This paper addresses analytical aspects of exchange rate policy and emphasizes the relationship among exchange rate flexibility, financial discipline, and international competitiveness.

International finance --- Developing countries --- Foreign exchange administration --- -LDC / Developping Countries - Pays En Développement --- 333.825 --- 333.450 --- 339.74 <1-772> --- 330.05 --- 332.456091724 --- Foreign exchange --- Deviezenpolitiek. Interventies. --- Theorie van het deviezenverkeer. Theorie van de koopkrachtpariteit. --- Monetaire buitenlandse politiek. Deviezenpolitiek--Onontwikkelde, onderontwikkelde gebieden --- Working papers --- 339.74 <1-772> Monetaire buitenlandse politiek. Deviezenpolitiek--Onontwikkelde, onderontwikkelde gebieden --- LDC / Developping Countries - Pays En Développement --- Theorie van het deviezenverkeer. Theorie van de koopkrachtpariteit --- Deviezenpolitiek. Interventies --- Foreign Exchange --- Inflation --- Money and Monetary Policy --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Price Level --- Deflation --- Development Planning and Policy: Trade Policy --- Factor Movement --- Foreign Exchange Policy --- Currency --- Monetary economics --- Macroeconomics --- Real exchange rates --- Exchange rate arrangements --- Exchange rates --- Conventional peg --- Exchange rate adjustments --- Money --- Prices --- United States