This paper extends Chang's et al. (1999) small open economy model with efficient wage and employment bargaining to the dual floating exchange rates system. We assume the policy authorities choose the desired commercial exchange rates level and desired financial exchange rates level as policy targets and use fiscal policy and monetary policy as policy instrument. If the policy authorities want to achieve the dual policy targets, then how to choose the appropriate policy assignment principle. We find the "relative magnitude of interest rate elasticity with respect to money demand" and "the stability condition of economic systems" are the main and key two determinants to determine whether the policy authorities can achieve the dual policy targets.
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