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Exchange Rate Policies at the Zero Lower Bound / Manuel Amador, Javier Bianchi, Luigi Bocola, Fabrizio Perri.
- Format:
- Book
- Author/Creator:
- Amador, Manuel.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w23266.
- NBER working paper series no. w23266
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2017.
- Summary:
- We study the problem of a monetary authority pursuing an exchange rate policy that is inconsistent with interest rate parity because of a binding zero lower bound constraint. The resulting violation in interest rate parity generates an inflow of capital that the monetary authority needs to absorb by accumulating foreign reserves. We show that these interventions by the monetary authority are costly, and we derive a simple measure of these costs: they are proportional to deviations from the covered interest parity (CIP) condition and the amount of accumulated foreign reserves. Our framework can account for the recent experiences of "safe-haven" currencies and the sign of their observed deviations from CIP.
- Notes:
- Print version record
- March 2017.
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