Reserve and exchange rate cycles

Many Latin American countries appear locked into cycles of reserve loss, devaluation and temporary reserve gains. This paper shows how a dual exchange rate system with leakages may generate cycles in reserves and the premium between official and parallel exchange rates. We study the dynamics of thes...

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Bibliographic Details
Published in:Journal of international economics 1998-10, Vol.46 (1), p.31-59
Main Authors: Flood, Robert, Perraudin, William, Vitale, Paolo
Format: Article
Language:English
Subjects:
Balance of payments
Bank reserves
Business cycles
Devaluation
Dual exchange rates
Economic models
Economics
Exchange rate policy
Exchange rates
Foreign exchange rates
Latin America
Monetary policy
Monetary reserves
Regime shifts
Reserves
Studies
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Summary:Many Latin American countries appear locked into cycles of reserve loss, devaluation and temporary reserve gains. This paper shows how a dual exchange rate system with leakages may generate cycles in reserves and the premium between official and parallel exchange rates. We study the dynamics of these cycles and their asymptotic behavior both analytically and numerically.
ISSN:0022-1996
1873-0353
DOI:10.1016/S0022-1996(97)00045-7