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Economic Adjustment and Exchange Rates in Developing Countries

In spite of the attention paid exchange rates in recent economic debates on developing countries, relatively few studies have systematically analyzed in detail the various ramifications of exchange rate policy in these countries. In this new volume from the National Bureau of Economic Research, leading economists use rigorous models to tackle various exchange rate issues, while also illuminating policy implications that emerge from their analyses.

The volume, divided into four main sections, addresses: the role of exchange rates in stabilization programs and the adjustment process; the importance of exchange rate policy during liberalization reform in developing countries; exchange rate problems relevant and unique to developing countries, illustrated by case studies; and the problems defining, measuring, and identifying determinants of real exchange rates. Authors of individual papers examine the relation between commercial policies and exchange rates, the role of exchange rate policy in stabilization programs, the effectiveness of devaluations as a policy tool, and the interaction between exchange rate terms of trade an capital flow. This research will not only prove crucial to our understanding of the role of exchange rates in developing countries, but will clearly set the standard for future work in the field.

Table of Contents

Introduction by Sebastian Edwards and Liaquat Ahamed
I. Stabilization, Adjustment, and Exchange Rate Policy in Developing Countries
1. Exchange Rate Management and Stabilization Policies in Developing Countries
Sweder van Wijnbergen
Comment: James A. Hanson
2. The Effects of Commercial, Fiscal, Monetary, and Exchange Rate Policies on the Real Exchange Rate
Michael Mussa
Comment: Jeffrey A. Frankel
Comment: Kathie L. Krumm
3. Wage Indexation, Supply Shocks, and Monetary Policy in a Small, Open Economy
Joshua Aizenman and Jacob A. Frenkel
Comment: Stanley Fischer
Comment: Constantino Lluch
4. Multiple Exchange Rates for Commercial Transactions
Rudiger Dornbusch
Comment: Manuel Guitián
Comment: Richard C. Marston
II. Economic Reform, Foreign Shocks, and Exchange Rates
5. Welfare, Banks, and Capital Mobility in Steady State: The Case of Predetermined Exchange Rates
Guillermo A. Calvo
Comment: Mario I. Blejer
6. Capital Flows, the Current Account, and the Real Exchange Rate: The Consequences of Stabilization and Liberalization
Maurice Obstfeld
Comment: Marcelo Selowsky
III. Case Studies
7. Commodity Export Prices and the Real Exchange Rate in Developing Countries: Coffee in Colombia
Sebastian Edwards
Comment: Sarath Rajapatirana
Comment: Armeane Choksi
8. Stabilization, Stagflation, and Investment Incentives: The Case of Kenya, 1979-1980
William H. Branson
Comment: Jacques R. Artus
Comment: Ravi Gulhati
9. Discrete Devaluation as a Signal to Price Setters: Suggested Evidence from Greece
Louka T. Katseli
Comment: Stanley W. Black
Comment: John Williamson
10. Collective Pegging to a Single Currency: The West African Monetary Union
Jorge Braga de Macedo
Comment: Liaquat Ahamed
Comment: Stephen O’Brien
IV. Economic Adjustment and the Real Exchange Rate
11. Economic Adjustment and the Real Exchange Rate
Arnold C. Harberger
Comment: Carlos Díaz-Alejandro
Comment: Mohsin S. Khan
List of Contributors
Author Index
Subject Index

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