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...
Main Author: | |
---|---|
Other Authors: | |
Format: | eBook |
Language: | English |
Published: |
Washington, D.C.
International Monetary Fund
1991
|
Series: | IMF Working Papers
|
Online Access: | |
Collection: | International Monetary Fund - Collection details see MPG.ReNa |
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 |