Credibility And The Dynamics Of Stabilization Policy
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Credibility And The Dynamics Of Stabilization Policy
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Author : Mr.Guillermo Calvo
language : en
Publisher: International Monetary Fund
Release Date : 1990-11-01
Credibility And The Dynamics Of Stabilization Policy written by Mr.Guillermo Calvo and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 1990-11-01 with Business & Economics categories.
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.
Losing Credibility
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Author : Pablo E. Guidotti
language : en
Publisher:
Release Date : 2001
Losing Credibility written by Pablo E. Guidotti and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2001 with categories.
The exchange rate is, by far, the most popular nominal anchor in inflation stabilization programs in developing countries. The credibility associated with exchange rate-based stabilization plans appears to exhibit a distinctive dynamic pattern. Credibility rises in the early stages of these programs as the exchange rate anchor brings about price stability with no real costs, only to fall later on as the recessionary effects of the ensuing real appreciation begin to take hold. In the late stages of such programs--which often fail--credibility seems to fall precipitously, as the question becomes not if but when the program will be abandoned. This paper formalizes this dynamic pattern of credibility. It develops a political economy model that provides a natural definition of credibility and shows how economic and political variables influence credibility. The model assumes that the stabilization plan takes place in two stages. In the first stage, an exchange rate peg is implemented and the fiscal deficit is partially reduced. In the second stage--which may in fact never take place--the fiscal adjustment is completed. After the implementation of the plan, pressure groups negotiate over which group will bear the cost of the taxes needed to close the remaining fiscal gap (i.e., they engage in a war of attrition). At the same time, the real appreciation of the domestic currency leads to expectations of a devaluation, loss of international reserves and, potentially, to a balance of payments crisis. In this context, credibility is defined as the conditional probability that the budget agreement takes place before a balance of payments crisis develops. The paper shows that credibility rises in the early stages of the program, as international reserves are still plenty, interest rates are low, and the public debt has yet to skyrocket. Later, however, crediblity begins to fall, as rising interest rates make it more likely that a balance of payments crisis will take place and a large public debt makes it more costly for political groups to concede. The model thus suggests that if a budget agreement is not reached in the early stages of the plan, the program may quickly lose credibility and end in a full-blown crisis due to the intrinsic dynamics of a two-stage plan.
Exchange Rate Based Stabilization Under Imperfect Credibility
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Author : Mr.Guillermo Calvo
language : en
Publisher: International Monetary Fund
Release Date : 1991-08-01
Exchange Rate Based Stabilization Under Imperfect Credibility written by Mr.Guillermo Calvo and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 1991-08-01 with Business & Economics categories.
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.
Monetary And Fiscal Policy Politics
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Author : Torsten Persson
language : en
Publisher: MIT Press
Release Date : 1994
Monetary And Fiscal Policy Politics written by Torsten Persson and has been published by MIT Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 1994 with Business & Economics categories.
This is the first of two volumes on a theory of macroeconomic policy that analyzes which policies are credible or politically feasible. Instead of looking at policy as an end product, the contributors approach policy as an ongoing process of revised goals, changes in tactics, and political pressures. They consider what kinds of incentives within different institutional settings, drive policy-making and the behaviour of policy-makers. The approach explains why certain monetary and fiscal policies are implemented, and provides insights into situations that occur repeatedly in macroeconomic policy, such as the bias toward government deficits, partisan competition and central bank independence.
On Credible Disinflation
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Author : Mr.Jorge Roldos
language : en
Publisher: International Monetary Fund
Release Date : 1993-11-01
On Credible Disinflation written by Mr.Jorge Roldos and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 1993-11-01 with Business & Economics categories.
We study the effects of a credible, gradual exchange rate based disinflation program in a two sector economy. After an initial real exchange rate depreciation, the reductions in the rate of devaluation reduce the monetary wedge generated by a cash in advance constraint, leading to a gradual increase in absorption that yields progressive real exchange rate appreciations and current account deficits. An initial boom in economic activity is not followed by a later contraction, as labor supply expands during the whole length of the program.
Great Inflations Of The 20th Century
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Author : Pierre L. Siklos
language : en
Publisher: Edward Elgar Publishing
Release Date : 1995-01-01
Great Inflations Of The 20th Century written by Pierre L. Siklos and has been published by Edward Elgar Publishing this book supported file pdf, txt, epub, kindle and other format this book has been release on 1995-01-01 with Business & Economics categories.
'. . . the book contains an interesting collection of articles. . .' - Jan Kakes, De Economist 'In short Pierre Siklos has put together a book that is informative, thought provoking, and fun to read.' - Bruce D. Smith, Journal of Economic History The problems associated with chronically high inflation and hyperinflation continue to preoccupy policy makers and economists. In Great Inflations of the 20th Century, Pierre Siklos has gathered together major papers by a distinguished group of scholars who use historical episodes to understand and explain a key issue.
Sticky Inflation And The Real Effects Of Exchange Rate Based Stabilization
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Author : Oya Celasun
language : en
Publisher: International Monetary Fund
Release Date : 2003-07-01
Sticky Inflation And The Real Effects Of Exchange Rate Based Stabilization written by Oya Celasun and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003-07-01 with Business & Economics categories.
Exchange rate-based inflation stabilization (ERBS) policies are associated with a boom-recession cycle in economic activity and sustained real exchange rate appreciation. A class of models in the literature has explained these empirical regularities with the lack of credibility of the stabilization plans. The lack-of-credibility models typically assume perfectly forward-looking pricing behavior without inflation stickiness and attribute the slow decline in inflation to the consumption boom that occurs due to the perceived temporariness of the ERBS policy. This paper tests the empirical validity of forward-looking pricing behavior in Mexico and Turkey, two countries which have experienced ERBS. It finds that the forward- and backward-looking components of inflation weigh approximately equally in pricing behavior, and therefore, that inflation is partially sticky. The paper then develops the theoretical implications of partial inflation stickiness in a lack of credibility model of ERBS and concludes that the presence of stickiness significantly reduces the persistence of the consumption boom predicted by the model, but helps to explain the recession in the late phase of the stabilization.
Imf Staff Papers
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Author : International Monetary Fund. Research Dept.
language : en
Publisher: International Monetary Fund
Release Date : 1992-01-01
Imf Staff Papers written by International Monetary Fund. Research Dept. and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 1992-01-01 with Business & Economics categories.
This paper examines market liberalization policies in a reforming socialist economy. The aim of this paper is to develop a model of such a reforming socialist economy and to explore the consequences of market-oriented policies in the context of such an economy. A model of a socialist economy is presented, incorporating bargaining over wages and employment in the socialized sector and shortages that are reflected in the black market. The model is used to analyze the implications of liberalization policies, including trade liberalization, an administered price increase, and provisions allowing for increased direct foreign investment. The nonsocialized sector is perfectly competitive and produces an output that is different from that of the socialized sector. It has a neoclassical production function using a sector-specific input (say, capital) and labor. The results suggest that reforms may have different effects under different trade regimes and that small price reforms may have perverse effects.
Development Macroeconomics
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Author : Pierre-Richard Agénor
language : en
Publisher: Princeton University Press
Release Date : 2015-06-23
Development Macroeconomics written by Pierre-Richard Agénor and has been published by Princeton University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015-06-23 with Business & Economics categories.
The global financial crisis triggered severe shocks for developing countries, whose embrace of greater commercial and financial openness has increased their exposure to external shocks, both real and financial. This new edition of Development Macroeconomics has been fully revised to address the more open and less stable environment in which developing countries operate today. Describing the latest advances in this rapidly changing field, the book features expanded coverage of public debt and the management of capital inflows as well as new material on fiscal discipline, monetary policy regimes, currency, banking and sovereign debt crises, currency unions, and the choice of an exchange-rate regime. A new chapter on dynamic stochastic general equilibrium (DSGE) models with financial frictions has been added to reflect how the financial crisis has reshaped our thinking on the role of such frictions in generating and propagating real and financial shocks. The book also discusses the role of macroprudential regulation, both independently and through its interactions with monetary policy, in preserving financial and macroeconomic stability. Now in its fourth edition, Development Macroeconomics remains the definitive textbook on the macroeconomics of developing countries. The most authoritative book on the subject—now fully revised and expanded Features new material on fiscal discipline, monetary policy regimes, currency, banking and sovereign debt crises, and much more Comes with online supplements on informal financial markets, stabilization programs, the solution of DSGE models with financial frictions, and exchange rate crises
Imf Conditionality
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Author : Mr.James John
language : en
Publisher: International Monetary Fund
Release Date : 1995-09-29
Imf Conditionality written by Mr.James John and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 1995-09-29 with Business & Economics categories.
This paper is part II of a two-volume study conducted as a part of the IMF's ongoing process of evaluating its lending facilities. It focuses on IMF-supported programs and macroeconomic performance during 1988-92, reflecting information available through the end of 1993. Part I (Occasional Paper No. 128) provides an overview of the principal issues and findings and distills the main message for future programs. Part II presents detailed examinations of selected policy issues in five background papers.