Some specific problems with real exchange rate targeting

Abstract

Since 1966, public opinion and the academic community in Uruguay have debated about the exchange rate rule applied by the government, consisting –in accordance with the opinions of the authorities– in maintaining a “realistic” exchange rate. This article, however, does not propose to make an exhaustive analysis of the monetary-exchange policy followed by the Central Bank of Uruguay, but rather to consider the issue of the viability of a target on the real exchange rate (RER) with a certain generality and without going into details about the peculiarities of Uruguayan economic policy. Specifically, it seeks to analyze the stability of an intervention rule on the price of the currency, implemented with the purpose of maintaining a “high” real rate.

JEL classification: E52 ; E58 ; F31