Listing 1 - 1 of 1 |
Sort by
|
Choose an application
We study the optimal foreign exchange (FX) intervention policy in response to a positive terms of trade shock and associated Dutch disease episode in a small open economy model. We find that during a Dutch disease episode tradable production drops below the socially optimal level, resulting in lower welfare under learningby- doing (LBD) externalities. FX reserves accumulation improves welfare by preventing a large appreciation of the real exchange rate and by inducing an efficient reallocation between the tradable and non-tradable sectors. For an empirically plausible parametrization of LBD externalities, the model predicts that in response to a 10 percent increase in commodity prices FX reserves should increase by 1.5 percent of GDP. We also find that the welfare gains from optimally using FX reserves are twice as high as the gains from relying only on monetary policy. These results suggest that FX intervention is a beneficial policy to counteract the loss of competitiveness during a Dutch disease episode.
Foreign exchange rates. --- Foreign exchange rates --- Monetary policy --- International finance --- International monetary system --- International money --- Finance --- International economic relations --- Exchange rates --- Fixed exchange rates --- Flexible exchange rates --- Floating exchange rates --- Fluctuating exchange rates --- Foreign exchange --- Rates of exchange --- Econometric models. --- Rates --- Investments: Energy --- Foreign Exchange --- Macroeconomics --- Economic Theory --- Commodity Markets --- Resource Booms --- Central Banks and Their Policies --- Open Economy Macroeconomics --- Currency --- Economic theory & philosophy --- Investment & securities --- Commodity prices --- Dutch disease --- Commodity booms --- Prices --- Economic theory --- Commodities --- Economic forecasting --- Commercial products --- Brazil
Listing 1 - 1 of 1 |
Sort by
|