DP123 Monetary Policy Interactions under Managed Exchange Rates
Author(s): | Francesco Giavazzi, Alberto Giovannini |
Publication Date: | August 1986 |
Keyword(s): | Exchange Rates, Monetary Policy, Mundell-Fleming Model |
JEL(s): | 026, 311, 431, 432 |
Programme Areas: | International Macroeconomics |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=123 |
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.