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Credibility and the Dynamics of Stabilization Policy A Basic Framework

This paper studies price stabilization policy under both predetermined and flexible exchange rates. Under predetermined exchange rates, a non-credible stabilization program results in an initial expansion of output, followed by a later recession. The initial expansion accompanies an appreciating rea...

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Bibliographic Details
Main Author: Calvo, Guillermo
Other Authors: Végh Gramont, Carlos
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 1990
Series:IMF Working Papers
Subjects:
Interest Rates
Inflation
Wealth
Finance
Currency; Foreign Exchange
Saving
Financial Services
Real Interest Rates
Deflation
National Accounts
Foreign Exchange
Price Level
Consumption; Economics
Exchange Rate Flexibility
Banks And Banking
Consumption
Prices
Macroeconomics
Macroeconomics: Consumption
Real Exchange Rates
Interest Rates: Determination, Term Structure, And Effects
Argentina
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Description
Summary:This paper studies price stabilization policy under both predetermined and flexible exchange rates. Under predetermined exchange rates, a non-credible stabilization program results in an initial expansion of output, followed by a later recession. The initial expansion accompanies an appreciating real exchange rate. Under flexible exchange rates, the recession occurs at the beginning of the program. The real exchange rate appreciates sharply on impact but depreciates afterwards. Lack of credibility is more costly under predetermined exchange rates because the real effects are more pronounced
Physical Description:48 pages
ISBN:9781451945584

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