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A Stylized Model of the Devaluation-Inflation Spiral (Modèle stylisé de la spirale dévauation-inflation) (Un modelo estilizado de la espiral devaluación-inflación)

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  • Carlos A. Rodriguez

    (International Monetary Fund)

Abstract

A simple macroeconomic model is developed in order to analyze some of the dynamic elements of the devaluation-inflation spiral in the presence of a real government deficit financed through credit creation by the central bank. It is concluded that under those circumstances the objectives of price stability and external balance are inconsistent. Assuming that the government devalues whenever reserves reach a minimum acceptable level, the likely outcome of the process is a typical cycle during which the price level follows three distinct phases: (1) a jump at the moment of devaluation, (2) positive but decelerating inflation, and, finally (3) a stable price level (with falling reserves). It is shown that even though the need for exchange rate devaluation may come at a time of stable prices, both the exchange rate and the price level are endogenous variables with no direct causality relation between them over the whole of the typical cycle. Both exchange rate and price level movements are led by monetary developments, which are in turn determined entirely by the monetization of the fiscal deficit. /// L'auteur a construit un modèle macroéconomique simple dans le but d'analyser certains éléments dynamiques de la spirale dévaluation-inflation lorsqu'un déficit réel de l'Etat est financé par des avances de la banque centrale. Il ressort que, dans ces circonstances, l'objectif de la stabilité des prix et celui de l'équilibre extérieur sont incompatibles. Si l'on suppose que le gouvernement dévalue chaque fois que les réserves atteignent un niveau minimum tolérable, le résultat probable de ce processus sera un cycle typique au cours duquel le niveau des prix passe par trois phases distinctes: 1) un bond au moment de la dévaluation, 2) une inflation positive mais ralentie et, enfin, 3) un niveau de prix stable (avec des réserves en baisse). Il est démontré que, même si la nécessité d'une dévaluation du taux de change se fait sentir à une époque où les prix sont stables, le taux de change et le niveau des prix sont des variables endogènes sans rapport direct de cause à effet entre elles pendant toute la durée du cycle typique. Les variations du taux de change et celles des prix sont toutes deux déterminées par l'évolution de la situation monétaire, qui, à son tour, est déterminée entièrement par la monétisation du déficit budgétaire. /// Se traza un modelo macroeconómico sencillo a fin de analizar algunos de los elementos dinámicos de la espiral devaluación-inflación ante un déficit real del sector público financiado mediante la creación de crédito por el banco central. Se llega a la conclusión de que en esas circunstancias el objetivo de estabilidad de precios y de equilibrio externo son incompatibles. Suponiendo que el gobierno devalúe siempre que las reservas alcancen un nivel mínimo aceptable, el resultado probable del proceso será un ciclo típico durante el cual el nivel de los precios pasará por tres fases distintas: 1) un alza brusca en el momento de la devaluación, 2) inflación positiva y en desaceleración y, finalmente, 3) un nivel estable de precios (con disminución de las reservas). Se demuestra que aun cuando la necesidad de devaluar el tipo de cambio pueda surgir en momentos en que haya estabilidad de precios, el tipo de cambio y el nivel de precios son variables endógenas que no tienen entre sí relación directa de causalidad durante todo el curso del período cíclico. Tanto el movimiento del tipo de cambio como el del nivel de precios obedecen a acontecimientos monetarios, que a su vez son determinados enteramente por la monetización del déficit fiscal.

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Article provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.

Volume (Year): 25 (1978)
Issue (Month): 1 (March)
Pages: 76-89

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Handle: RePEc:pal:imfstp:v:25:y:1978:i:1:p:76-89

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