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Title: Monetary Policy Interactions under Managed Exchange Rates

Author(s): Francesco Giavazzi and Alberto Giovannini

Publication Date: August 1986

Keyword(s): Exchange Rates, Monetary Policy and Mundell-Fleming Model

Programme Area(s): International Macroeconomics

Abstract: This paper studies monetary policy games in a two-period Mundell-Fleming model, under a regime of managed exchange rates. A regime of managed exchange rates is defined as one where exchange rates are pegged but bilateral parities can be changed from time to time. The paper argues that such a regime is the most appropriate description of the Bretton Woods system and many arrangements currently in existence. We show that Cournot-Nash equilibria under managed rates differ significantly from those under fixed or floating rates. Under managed rates the world-wide efficiency losses from lack of coordination are not equally shared by all countries.

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Bibliographic Reference

Giavazzi, F and Giovannini, A. 1986. 'Monetary Policy Interactions under Managed Exchange Rates'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=123