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High real interest rates in the aftermath of disinflation: is it a lack of credibility?

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  • Kaminsky, Graciela L.
  • Leiderman, Leonardo

Abstract

High real interest rates have been observed in many countries for several months after the adoption of disinflation programs. While they may reflect primarily a liquidity crunch, high ex post real interest rates can also be explained in terms of an ex post error in inflation expectations that reflects a lack of credibility of the low-inflation policy. The latter hypothesis is tested using data for Argentina, Israel, and Mexico during the implementation of the stabilization programs in the mid-1980s.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 55 (1998)
Issue (Month): 1 (February)
Pages: 191-214

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Handle: RePEc:eee:deveco:v:55:y:1998:i:1:p:191-214

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References

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  1. Hamilton, James D., 1988. "Rational-expectations econometric analysis of changes in regime : An investigation of the term structure of interest rates," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 385-423.
  2. Martin D. Evans & Karen K. Lewis, 1992. "Do Expected Shifts in Inflation Policy Affect Real Rates?," Working Papers 92-22, New York University, Leonard N. Stern School of Business, Department of Economics.
  3. Calvo, Guillermo A, 1992. "Are High Interest Rates Effective for Stopping High Inflation? Some Skeptical Notes," World Bank Economic Review, World Bank Group, vol. 6(1), pages 55-69, January.
  4. Cukierman, Alex & Liviatan, Nissan, 1992. "The Dynamics of Optimal Gradual Stabilizations," World Bank Economic Review, World Bank Group, vol. 6(3), pages 439-58, September.
  5. Sergio Rebelo & Carlos A. Vegh, 1995. "Real Effects of Exchange Rate-Based Stabilization: An Analysis of Competing Theories," NBER Working Papers 5197, National Bureau of Economic Research, Inc.
  6. Hoe E. Khor & Liliana Rojas-Suarez, 1991. "Interest Rates in Mexico: The Role of Exchange Rate Expectations and International Creditworthiness," IMF Staff Papers, Palgrave Macmillan, vol. 38(4), pages 850-871, December.
  7. Rudiger Dornbusch & Stanley Fischer, 1986. "Stopping hyperinflations past and present," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 122(1), pages 1-47, March.
  8. Ruge-Murcia, Francisco J, 1995. "Credibility and Changes in Policy Regime," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 176-208, February.
  9. Calvo, Guillermo A. & Kaminsky, Graciela L., 1991. "Debt relief and debt rescheduling : The optimal-contract approach," Journal of Development Economics, Elsevier, vol. 36(1), pages 5-36, July.
  10. Leiderman, Leonardo, 1993. "Inflation and Disinflation," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226471105, September.
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Citations

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Cited by:
  1. Nadezhda Ivanova, 2007. "Estimation of the Equilibrium Real Exchange Rate in Russia: Trade-Balance Approach," Working Papers w0102, Center for Economic and Financial Research (CEFIR).
  2. Isard, Peter & Laxton, Douglas & Eliasson, Ann-Charlotte, 2001. "Inflation targeting with NAIRU uncertainty and endogenous policy credibility," Journal of Economic Dynamics and Control, Elsevier, vol. 25(1-2), pages 115-148, January.
  3. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
  4. Reinhart, Carmen & Kaminsky, Graciela, 2000. "Las crisis gemelas: las causas de los problemas bancarios y de balanza de pagos
    [The twin crises: Te causes of banking and balance of payments problems]
    ," MPRA Paper 13842, University Library of Munich, Germany.
  5. Frankel, Jeffrey & Saravelos, George, 2012. "Can leading indicators assess country vulnerability? Evidence from the 2008–09 global financial crisis," Journal of International Economics, Elsevier, vol. 87(2), pages 216-231.
  6. 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.
  7. Prof.Dr. Cevat GERNI & Doc.Dr. O. Selcuk EMSEN & Dr. M. Kemal DEGER, 2005. "Erken Uyari Sistemlerý Yoluyla Turkiye’Deki Ekonomik Krizlerin Analizi," Istanbul University Econometrics and Statistics e-Journal, Department of Econometrics, Faculty of Economics, Istanbul University, vol. 2(1), pages 39-62, November.
  8. Prakash Kannan, 2008. "Perspectives on High Real Interest Rates in Turkey," IMF Working Papers 08/251, International Monetary Fund.
  9. Bleaney, Michael & Gundermann, Marco, 2007. "Stabilizations, crises and the "exit" problem - A theoretical model," Journal of Macroeconomics, Elsevier, vol. 29(4), pages 876-890, December.
  10. Alex Luiz Ferreira, 2004. "Leaning Against the Parity," Studies in Economics 0413, Department of Economics, University of Kent.
  11. Warwick J McKibbin & Will Martin, 1998. "The East Asian Crisis: Investigating Causes and Policy Responses," Departmental Working Papers 1998-06, The Australian National University, Arndt-Corden Department of Economics.

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