Policy Responses to Aid Surges in Countries with Limited International Capital Mobility : The Role of the Exchange Rate Regime /

We study the role of the exchange rate regime, reserve accumulation, and sterilization policies in the 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 fle...

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Bibliographic Details
Main Author: Berg, Andrew
Other Authors: Portillo, Rafael, Zanna, Luis-Felipe
Format: Journal
Language:English
Published: Washington, D.C. : International Monetary Fund, 2014.
Series:IMF Working Papers; Working Paper ; No. 2014/018
Online Access:Full text available on IMF
Description
Summary:We study the role of the exchange rate regime, reserve accumulation, and sterilization policies in the 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 reducing private consumption and investment, and therefore medium-term growth.
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Physical Description:1 online resource (41 pages)
Format:Mode of access: Internet
ISSN:1018-5941
Access:Electronic access restricted to authorized BRAC University faculty, staff and students