chapter  3
13 Pages

How to manage a sustainable and stable competitive real exchange rate

WithRoberto Frenkel

This chapter focuses mainly on exchange-rate and monetary policies, as presented in next two sections. The analysis points out the crucial importance of fiscal policy in the implementation of a CRER, but we do not develop a detailed analysis of fiscal policy in the chapter. With the addition of the sustainability attribute the target that has to be discussed in this chapter is a sustainable stable competitive real exchange rate (S SCRER). This induces an acceleration of growth, but can also establish an inflationary pressure, generated by the rapid growth in aggregate demand induced by the SSCRER. It seems to be the best exchange-rate arrangement to implement a SSCRER policy in present times. Capital controls that moderate the scale of central bank purchasing help preserve whatever degree of autonomy is possessed by the economy at a given time. The orientation focuses on allowing countercyclical policies in the short run and on avoiding the accumulation of significant public debts.