Nominal Anchor Exchange Rate Policies as a Domestic Distortion

41 Pages Posted: 15 Jul 2000

See all articles by Anne O. Krueger

Anne O. Krueger

International Monetary Fund (IMF); Stanford University - Graduate School of Business; National Bureau of Economic Research (NBER)

Date Written: March 1997

Abstract

This paper analyzes a nominal anchor exchange rate policy as a domestic distortion, in the tradition of international trade theory. It is shown that, in addition to the problems of sustainability and exit pinpointed in the exchange rate literature, a nominal anchor exchange rate policy, while in force, drives a wedge between the domestic and the international intertemporal marginal rates of substitution. The welfare cost of the Mexican use of the nominal anchor exchange rate policy prior to December 1994 is then estimated.

Suggested Citation

Krueger, Anne O., Nominal Anchor Exchange Rate Policies as a Domestic Distortion (March 1997). NBER Working Paper No. w5968, Available at SSRN: https://ssrn.com/abstract=225747

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