Working Paper: NBER ID: w1424
Authors: Robert E. Cumby
Abstract: This paper finds that the introduction of dual exchange rates gives the monetary authority greater independence from external constraints than it would otherwise enjoy. The monetary authority is able to influence the level of aggregate demand in the short run and to sterilize the effects of temporary foreign distrubances. In addition, the paper finds that dual rates insulate the domestic economy fully from foreign interest rate changes but do not provide insulation from speculative disturbances.
Keywords: Monetary Policy; Dual Exchange Rates; Aggregate Demand
JEL Codes: F31; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Dual exchange rates (F31) | Monetary authority's independence from external constraints (E58) |
| Dual exchange rates (F31) | Aggregate demand influence (E00) |
| Dual exchange rates (F31) | Insulation from foreign interest rate changes (E43) |
| Foreign interest rates (E43) | Domestic economic stability (E63) |
| Dual exchange rates (F31) | Protection from speculative disturbances (D84) |