TY  - JOUR
AU  - Uribe,Martin
TI  - Real Exchange Rate Targeting and Macroeconomic Instability
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9294
PY  - 2002
Y2  - October 2002
UR  - http://www.nber.org/papers/w9294
L1  - http://www.nber.org/papers/w9294.pdf
N1  - Author contact info:
Martin Uribe
Department of Economics
Columbia University
International Affairs Building
New York, NY 10027
Tel: 212 851 4008
Fax: 212 854 8059
E-Mail: martin.uribe@columbia.edu
AB  - Using an optimizing model of a small open economy, this paper studies the macroeconomic effects of PPP rules whereby the government increases the devaluation rate when the real exchange rate defined as the price of tradables in terms of nontradables is below its long-run level and reduces the devaluation rate when the real exchange rate is above its long-run level. The paper shows that the mere existence of such a rule can generate aggregate fluctuations due to self-fulfilling revisions in expectations. The result is shown to obtain in both flexible- and sticky-price environments.
ER  -