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On the Political Economy of Temporary Stabilization Programs

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  • Laura Alfaro

Abstract

This paper provides a political economy explanation for temporary exchange-rate-based stabilization programs by focusing on the distributional effects of real exchange-rate appreciation. I propose an economy in which agents are endowed with either tradable or non-tradable goods. Under a cash-in-advance assumption, a temporary reduction in the devaluation rate induces a consumption boom accompanied by real appreciation, which hurts the owners of tradable goods. The owners of non-tradables have to weigh two opposing effects: an increase in the present value of non-tradable goods wealth and a negative intertemporal substitution effect. For reasonable parameter values, owners of non-tradables are better off. Copyright 2002 Blackwell Publishers Ltd..

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Economics and Politics.

Volume (Year): 14 (2002)
Issue (Month): 2 (07)
Pages: 133-161

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Handle: RePEc:bla:ecopol:v:14:y:2002:i:2:p:133-161

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Cited by:
  1. Terra, Maria Cristina T., 2007. "The Political Economy of Exchange Rate in Brazil," Economics Working Papers (Ensaios Economicos da EPGE) 656, FGV/EPGE Escola Brasileira de Economia e Finan├žas, Getulio Vargas Foundation (Brazil).
  2. Lim, Jamus Jerome, 2006. "Special Interests, Regime Choice, and Currency Collapse," MPRA Paper 5516, University Library of Munich, Germany, revised 2007.
  3. Aysan, Ahmet Faruk, 2006. "Distributional Effects of Boom-Bust Cycles in Developing Countries with Financial Frictions," MPRA Paper 5484, University Library of Munich, Germany.
  4. Vladimir Klyuev, 2003. "The Distributional Consequences of Real Exchange Rate Adjustment," IMF Working Papers 03/133, International Monetary Fund.

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