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Exchange-Rate-Based Stabilization under Imperfect Credibility

This paper analyzes stabilization policy under predetermined exchange rates in a cash-in-advance, staggered-prices model. Under full credibility, a reduction in the rate of devaluation results in an immediate and permanent reduction in the inflation rate, with no effect on output or consumption. In...

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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 1991
Series:IMF Working Papers
Subjects:
Money
Deflation
Financial Services
Money And Monetary Policy
Macroeconomics
Real Exchange Rates
National Accounts
Wealth
Interest Rates
Monetary Economics
Monetary Base
Banks And Banking
Currency
Real Interest Rates
Interest Rates: Determination, Term Structure, And Effects
Foreign Exchange
Consumption
Prices
Open Economy Macroeconomics
Saving
Macroeconomics: Consumption
Money Supply
Inflation
Economics
Finance
Monetary Policy, Central Banking, And The Supply Of Money And Credit: General
Price Level
Argentina
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Description
Summary:This paper analyzes stabilization policy under predetermined exchange rates in a cash-in-advance, staggered-prices model. Under full credibility, a reduction in the rate of devaluation results in an immediate and permanent reduction in the inflation rate, with no effect on output or consumption. In contrast, a non-credible stabilization results in an initial expansion of output, followed by a later recession. The inflation rate of home goods remains above the rate of devaluation throughout the program, thus resulting in a sustained real exchange rate appreciation
Physical Description:34 pages
ISBN:9781451849912

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