Title Policy responses to aid surges in countries with limited international capital mobility : the role of the exchange rate regime / Andrew Berg, Rafael Portillo and Luis-Felipe Zanna

Published Washington, D.C. International Monetary Fund, 2014

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Description 1 online resource (42 pages) Series IMF working paper ; no. 14/18 IMF working paper ; no. 14/18. Contents Cover; Table of Contents; I. Introduction; II. The Model; A. Firms in the Traded (T) and Non-Traded (N) Good Sectors; B. Households; C. The Government; C.1. Fiscal Policy; D. The Central Bank; D.1. Exchange Rate Regimes and Reserve Accumulation Policies; D.2. Monetary and Sterilization Policies; E. The Balance of Payments; III. Calibration; Tables; Table 1. Calibration: Technology and Preference Parameters; Table 2. Calibration: Policy Parameters and Aid Process; IV. Simulation Results; A.A Flexible Exchange Rate Regime Versus A Fixed Regime: Are They Similar?; Figures Figure 1. The Macroeconomic Effects of Aid Surges under a Flexible Exchange Rate Regime and a Fixed Regime Without SterilizationB. A Fixed Exchange Rate Regime: Sterilize Versus Don't Sterilize; Figure 2. The Macroeconomic Implications of Sterilization Policies in a Fixed Exchange Rate Regime; C. Fixed and Managed Float Regimes: The Role of Sterilization and Reserve Accumulation; Figure 3. A Comparison of the Macroeconomic Effects of a Fixed Exchange Rate Regime Versus the Effects of a Managed Float Regime with Full Reserve Accumulation D.A Fixed Exchange Rate Regime: Closed Versus Open Capital AccountFigure 4. The Role of International Capital Mobility in a Fixed Exchange Rate Regime Without Sterilization; E. Welfare; Figure 5. Welfare Analysis; F. Discussion; V. Conclusions; Appendix; A. The Model in Detail; A.1. Firms; A.2. Households; A.3. The Government; A.4. The Central Bank; A.5. The Good Market Equilibrium Conditions; A.6. Definition of Equilibrium; References Summary We study the role of the exchange rate regime, reserve accumulation, and sterilization policies inthe macroeconomics of aid surges. Absent sterilization, a peg allows for almost full aid absorption? an increase in the current account deficit net of aid?delivering the same effects as those of a flexible regime but with a necessary increase in inflation. Regardless of the regime, policies that limit absorption?and result in large accumulation of reserves?are welfare reducing:they help reduce the real appreciation (and inflation under the peg), but at the expense of reducingprivate consumption an Bibliography Includes bibliographical references Notes Print version record Subject Foreign exchange rates -- Econometric models Foreign exchange reserves -- Econometric models Economic assistance -- Econometric models Economic assistance -- Econometric models Foreign exchange rates -- Econometric models Form Electronic book Author Portillo, Rafael, author Zanna, Luis-Felipe, author International Monetary Fund, issuing body. ISBN 9781484397954 1484397959 9781484397008 1484397002 130645459X 9781306454599

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