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Inflation Stabilization and Nominal Anchors

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Author Info
Calvo, Guillermo A
Vegh, Carlos A

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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. (1) 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. (2) Lack of credibility is more disruptive under fixed exchange rates than under floating exchange rates. (3) Attempting to pursue a disinflationary policy while maintaining a given level of the real exchange rate is likely to be self-defeating. (4) A high degree of currency substitution favors the exchange rate as the nominal anchor. Copyright 1994 by Oxford University Press.

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Publisher Info
Article provided by Oxford University Press in its journal Contemporary Economic Policy.

Volume (Year): 12 (1994)
Issue (Month): 2 (April)
Pages: 35-45
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Handle: RePEc:oup: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. By A. Javier Hamann, 2001. "Exchange-Rate-Based Stabilization: A Critical Look at the Stylized Facts," IMF Staff Papers, Palgrave Macmillan Journals, vol. 48(1), pages 4. [Downloadable!] (restricted)
  3. 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!] (restricted)
  4. Ongan, Tevfik Hakan & Karabulut, Gökhan, 2004. "A Simple Model Of Currency Crises And Budget Deficits: The Case Of Turkey," MPRA Paper 1470, University Library of Munich, Germany. [Downloadable!]
  5. 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!]
  6. Diego Bastourre & Jorge Carrera, 2004. "Could The Exchange Rate Regime Reduce Macroeconomic Volatility?," Anais do XXXII Encontro Nacional de Economia [Proceedings of the 32th Brazilian Economics Meeting] 067, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
    Other versions:
  7. Aaron Tornell & Andres Velasco, 1995. "Money-Based versus Exchange Rate-Based Stabilization with Endogenous Fiscal Policy," NBER Working Papers 5300, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. 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!]
  9. 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!]
  10. 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!]
  11. A. Javier Hamann & Alessandro Prati, 2003. "Why Do Many Disinflations Fail? The Importance of Luck, Timing, and Political Institutions," IMF Working Papers 02/228, International Monetary Fund. [Downloadable!]
  12. 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!]
  13. De Melo, Martha & Denizer, Cevdet, 1997. "Monetary policy during transition : an overview," Policy Research Working Paper Series 1706, The World Bank. [Downloadable!]
  14. 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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  15. 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!]
  16. Neven T. 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!]
  17. Edward F. Buffie & Manoj Atolia, 2005. "Exchane-Rate-Based Stabilization, Durables Consumption, and the Stylized Facts," Working Papers wp2005_12_01, Department of Economics, Florida State University. [Downloadable!]
  18. Francisco José Veiga, 2003. "The Political Economy of Failed Stabilization," NIPE Working Papers 13/2003, NIPE - Universidade do Minho. [Downloadable!]
  19. Michael Bruno & William Easterly, 1995. "Inflation Crises and Long-Run Growth," NBER Working Papers 5209, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  20. Neven T. 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!]
  21. António Portugal Duarte, 2005. "The Portuguese Disinflation Process: Analysis of Some Costs and Benefits," International Finance 0504005, EconWPA. [Downloadable!]
  22. Marc Hofstetter, 2007. "Disinflating From Moderate Inflation," DOCUMENTOS CEDE 002373, UNIVERSIDAD DE LOS ANDES-CEDE. [Downloadable!]
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