Exchange Rate Based Stabilization Under Imperfect Credibility
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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.
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.
Exchange Rate Uncertainty In Money Based Stabilization Programs
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Author : Mr.R. Armando Morales
language : en
Publisher: International Monetary Fund
Release Date : 1998-01-01
Exchange Rate Uncertainty In Money Based Stabilization Programs written by Mr.R. Armando Morales 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 1998-01-01 with Business & Economics categories.
Complementing the explanation provided by Calvo and Vegh (1994) for money-based stabilization programs, exchange rate uncertainty introduced to a particular version of the portfolio approach with imperfect competition in the banking system leads to a bias toward appreciation that is directly related to the divergence of expectations and that dampens the interaction between portfolio movements and the real exchange rate. Based on Frankel-Froot, uncertainty exists when the fundamental equilibrium real exchange rate is temporarily unknown in a foreign exchange market with two types of agents: ‘parity-guessers,’ who expect a jump to a reference parity level, and ‘money-followers,’ who expect nominal depreciation equal to the monetary rule.
Foreign Exchange Intervention Under Policy Uncertainty
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Author : Gustavo Adler
language : en
Publisher: International Monetary Fund
Release Date : 2016-03-17
Foreign Exchange Intervention Under Policy Uncertainty written by Gustavo Adler 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 2016-03-17 with Business & Economics categories.
We study the use of foreign exchange (FX) intervention as an additional policy instrument in an environment with learning, where agents infer the central bank policy rules from its policy actions. Under full information, a central bank focused on stabilizing output and inflation can achieve better outcomes by using FX intervention as an additional policy tool. Under policy uncertainty, where agents perceive that monetary policy may also have exchange rate stabilization goals, the use of FX intervention entails a trade-off, reducing output volatility while increasing inflation volatility. While having an additional policy tool is always beneficial, we find that the optimal magnitude of intervention is higher in monetary policy regimes with lower uncertainty. These results indicate that the benefits of using FX intervention as an additional stabilization tool are greater in regimes where monetary policy is credibly focused on output and inflation stabilization.
The Behavior Of Real Interest Rates In Exchange Rate Based Stabilization Programs
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Author : Pierre-Richard Agénor
language : en
Publisher: International Monetary Fund
Release Date : 1994-06-01
The Behavior Of Real Interest Rates In Exchange Rate Based Stabilization Programs written by Pierre-Richard Agénor 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 1994-06-01 with Business & Economics categories.
This paper examines the behavior of real interest rates in exchange-rate based stabilization programs. The analysis is based on a model with imperfect capital mobility and optimizing agents. A permanent reduction in the devaluation rate is first shown to have an ambiguous effect on real interest rates on impact. The analysis is then extended to consider a stabilization program characterized by an initial reduction in the rate of devaluation of the nominal exchange rate, and the announcement of a future increase in income taxes. The impact effect on real interest rates is shown to depend upon the degree of credibility of the announcement. Real interest rates may fall if agents do not believe that taxes will be raised, and rise if the future tax reform is sufficiently credible.
Losing Credibility
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Author : Mr.Pablo Emilio Guidotti
language : en
Publisher: International Monetary Fund
Release Date : 1992-09-01
Losing Credibility written by Mr.Pablo Emilio Guidotti 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 1992-09-01 with Business & Economics categories.
In exchange rate-based stabilization programs, credibility often follows a distinct time pattern. At first it rises as the highly visible nominal anchor provides a sense of stability and hopes run high for a permanent solution to the fiscal problems. Later, as the domestic currency appreciates in real terms and the fiscal problems are not fully resolved, the credibility of the program falls, sometimes precipitously. This paper develops a political-economy model that focuses on the evolution of credibility over time, and is consistent with the pattern just described. Inflation inertia and costly budget negotiations play a key role in the model.
Credibility And Exchange Rate Management In Developing Countries
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Author : Pierre-Richard Agénor
language : en
Publisher: International Monetary Fund
Release Date : 1991-09-01
Credibility And Exchange Rate Management In Developing Countries written by Pierre-Richard Agénor 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 1991-09-01 with Business & Economics categories.
The paper examines the role of credibility in the conduct of exchange rate policy in developing countries, The analysis is based on a model in which policymakers are concerned about inflation and external competitiveness. Price setters in the nontraded goods sector of the economy adjust prices in reaction to anticipated fluctuations in the domestic price of tradable goods. This type of model is showm to generate a “devaluation bias” which undermines the credibility of a fixed exchange rate. The effect of reputational factors, signaling considerations, and joining a currency union as possible solutions to this bias is examined.
Evaluating Policy Rules Under Imperfect Credibility
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Author : Mr.Paul R. Masson
language : en
Publisher: International Monetary Fund
Release Date : 1991-12-01
Evaluating Policy Rules Under Imperfect Credibility written by Mr.Paul R. Masson 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 1991-12-01 with Business & Economics categories.
Evaluation of policy rules using empirical macroeconomic models is usually done on the assumption that the rules are perfectly credible. However, there are usually circumstances that cause the authorities to abandon any given rule. The public's expectations reflect this possibility. In the paper, credibility is assumed to depend on the probability that the authorities will abandon a rule because the resulting utility exceeds that from maintaining the rule. Simulations of a disinflation policy leading to price stability are presented. Its credibility varies over time, depending on the paths for output and inflation.
The Behavior Of Real Interest Rates In Exchange Rate Based Stabilization Programs
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Author : Pierre-Richard Agenor
language : en
Publisher:
Release Date : 2006
The Behavior Of Real Interest Rates In Exchange Rate Based Stabilization Programs written by Pierre-Richard Agenor and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006 with categories.
This paper examines the behavior of real interest rates in exchange-rate based stabilization programs. The analysis is based on a model with imperfect capital mobility and optimizing agents. A permanent reduction in the devaluation rate is first shown to have an ambiguous effect on real interest rates on impact. The analysis is then extended to consider a stabilization program characterized by an initial reduction in the rate of devaluation of the nominal exchange rate, and the announcement of a future increase in income taxes. The impact effect on real interest rates is shown to depend upon the degree of credibility of the announcement. Real interest rates may fall if agents do not believe that taxes will be raised, and rise if the future tax reform is sufficiently credible.
Exchange Rate Based Stabilization
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Author : Mr.A. Javier Hamann
language : en
Publisher: International Monetary Fund
Release Date : 1999-10-01
Exchange Rate Based Stabilization written by Mr.A. Javier Hamann 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 1999-10-01 with Business & Economics categories.
Do exchange-rate-based stabilizations generate distinctive economic dynamics? To address this question, this paper identifies stabilization episodes using criteria that differ from those in previous empirical studies of exchange-rate-based stabilizations. We find that, while some differences can be detected between exchange-rate-based stabilizations and stabilizations where the exchange rate is not the anchor, the behavior of important variables does not appear to differ—especially output growth, which is good in both cases. There is also no evidence that fiscal discipline is enhanced by adopting an exchange-rate anchor, or that there are any systematic differences in the success records of stabilizations that use the exchange rate as a nominal anchor and those that do not.