Working Paper: NBER ID: w0785
Authors: Michael Bruno
Abstract: A simple analytical framework is used to consider alternative exchange rate regimes and their bearing on macroeconomic management of a semi- industrial economy. The emphasis is on the implications of different degrees of capital mobility. One of the topics taken up is the conflict between the role of the real exchange rate as a signaling device for long-run resource allocation and the problem of real exchange rate appreciation accompanying the opening up of an economy to short-term capital inflow. Also discussed is the related choice of exchange rate policy as an anti-inflation device.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increase in capital mobility (F20) | short-term capital inflows (F32) |
| short-term capital inflows (F32) | real appreciation of the exchange rate (F31) |
| real appreciation of the exchange rate (F31) | depress manufacturing exports (F14) |
| increase in capital mobility (F20) | depress manufacturing exports (F14) |
| real exchange rate (F31) | long-run resource allocation (D25) |