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Inflation Stabilization And Nominal Anchors

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Author Info
GUILLERMO A. CALVO
CARLOS A. VÉGH

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Abstract

This paper analyzes the choice of a nominal anchor in disinflation programs in chronic inflation countries. Both theory and evidence suggest several conclusions. (i) The recessionary effects associated with disinflation appear in the early stages of money-based programs but only in the late stages of exchange rate-based programs. (ii) Lack of credibility is more disruptive under fixed exchange rates than under floating exchange rates. (iii) Attempting to pursue a disinflationary policy while maintaining a given level of the real exchange rate is likely to be self-defeating. (iv) A high degree of currency substitution favors the exchange rate as the nominal anchor. Copyright 1994 Western Economic Association International.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1465-7287.1994.tb00421.x
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Article provided by Western Economic Association International in its journal Contemporary Economic Policy.

Volume (Year): 12 (1994)
Issue (Month): 2 (04)
Pages: 35-45
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Handle: RePEc:bla:coecpo:v:12:y:1994:i:2:p:35-45

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  1. Chris Canavan & Mariano Tommasi, 1997. "Visibility and Credibility in the Political Economy of Reform," Boston College Working Papers in Economics 346., Boston College Department of Economics. [Downloadable!]
  2. De Melo, Martha & Denizer, Cevdet, 1997. "Monetary policy during transition : an overview," Policy Research Working Paper Series 1706, The World Bank. [Downloadable!]
  3. Neven Valev & John A. Carlson, 2002. "Tenuous Financial Stability," International Studies Program Working Paper Series, at AYSPS, GSU paper0210, International Studies Program, Andrew Young School of Policy Studies, Georgia State University. [Downloadable!]
  4. Bruno, Michael & Easterly, William, 1995. "Inflation crises and long-run growth," Policy Research Working Paper Series 1517, The World Bank. [Downloadable!]
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  5. Neven T. Valev & John A. Carlson, 2003. "Tenuous Financial Stability," William Davidson Institute Working Papers Series 540, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  6. António Portugal Duarte, 2005. "The Portuguese Disinflation Process: Analysis of Some Costs and Benefits," International Finance 0504005, EconWPA. [Downloadable!]
  7. Chionis, Dionysios, 2003. "Policy Misalignments of the Currency Board Arrangements: Issues and Experiences from the Caribbean Economies," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 3(2). [Downloadable!]
  8. Francisco José Veiga, 2003. "The Political Economy of Failed Stabilization," NIPE Working Papers 13/2003, NIPE - Universidade do Minho. [Downloadable!]
  9. Francisco Rosende, 1996. "Política Monetaria y Movimiento de Capital en Chile," Cuadernos de Economía (Latin American Journal of Economics), Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 33(98), pages 9-46. [Downloadable!]
  10. William C. Gruben & John H. Welch, 2005. "Is tighter fiscal policy expansionary under fiscal dominance? Hypercrowding out in Latin America," Center for Latin America Working Papers 0205, Federal Reserve Bank of Dallas. [Downloadable!]
  11. Marc Hofstetter, 2004. "Disinflations in Latin America and the Caribbean: A Free Lunch?," Economics Working Paper Archive 506, The Johns Hopkins University,Department of Economics. [Downloadable!]
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  12. António Duarte, 2009. "The Portuguese Disinflation Process: Analysis of Some Costs and Benefits," Transition Studies Review, Springer, vol. 16(1), pages 157-173, May. [Downloadable!] (restricted)
  13. Paulo Gala, 2005. "Exchange Rate Policies In Latin America And Asia, A Comparative Study," Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33th Brazilian Economics Meeting] 077, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
  14. Jorge Carrera & Diego Bastourre, 2004. "Could the Exchange Rate Regime Reduce Macroeconomic Volatility?," Econometric Society 2004 Latin American Meetings 309, Econometric Society. [Downloadable!]
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  15. Neven Valev, 2000. "Building Monetary Credibility in a Transforming Economy," International Studies Program Working Paper Series, at AYSPS, GSU paper0212, International Studies Program, Andrew Young School of Policy Studies, Georgia State University. [Downloadable!]
  16. Marc Hofstetter, 2007. "Disinflating From Moderate Inflation," DOCUMENTOS CEDE 002373, UNIVERSIDAD DE LOS ANDES-CEDE. [Downloadable!]
  17. Manoj Atolia & Edward F. Buffie, 2006. "Exchange-Rate-Based Stabilization, Durables Consumption, and Stylized Facts," Computing in Economics and Finance 2006 416, Society for Computational Economics. [Downloadable!]
  18. Michael Bruno & William Easterly, 1996. "Inflation and growth: in search of a stable relationship," Proceedings, Federal Reserve Bank of St. Louis, issue May, pages 139-146. [Downloadable!]
  19. Martin Uribe, 1996. "Comparing the welfare costs and the initial dynamics of alternative temporary stabilization policies," International Finance Discussion Papers 539, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  20. Edward F. Buffie & Manoj Atolia, 2005. "Exchange-Rate-Based Stabilization, Durables Consumption, and the Stylized Facts," Working Papers wp2005_12_01, Department of Economics, Florida State University, revised Jan 2009. [Downloadable!]
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