Real exchange rate targeting

Developing countries typically exhibit a high degree of macroeconomic variables-instability. This feature is particularly evident as regards the volatility of the real exchange rate. The concern with these destabilizing effects generated-by real exchange rate instability has prompted some developing countries to adopt real exchange rate targeting since the late 60's. However, this policy produces an inflation bias. This paper reviews economic literature on theoretical frameworks and empirical evidences about effects of real exchange rate targeting.