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.