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

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Price:  $18.00

Author/Editor: Andrew Berg, Rafael A Portillo, Luis-Felipe Zanna
Release Date: © January, 2014
ISBN : 978-1-48439-700-8
Stock #: WPIEA2014018
Stock Status: On back-order

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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 and investment, and therefore medium-term growth.

More publications in this series: Working Papers

More publications by: Andrew Berg ; Rafael A Portillo ; Luis-Felipe Zanna