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Endogenous credibility and stabilization programmes: evidence from the Dominican Republic

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  • Peter Prazmowski

Abstract

This paper analyses the impact of policy misalignments and structural reform policies on credibility and the long-term success of an exchange rate based (ERB) stabilization programme to reduce inflationary inertia. A controlled signal state-space model is used to test this hypothesis for the Dominican Republic, a country that introduced an ERB programme in the early 1990s. The results indicate that fiscal and monetary malpractice will deteriorate credibility whereas structural reform policies, when perceived as beneficial, will enhance credibility, contributing to economic stability.

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  • Peter Prazmowski, 2002. "Endogenous credibility and stabilization programmes: evidence from the Dominican Republic," Applied Economics Letters, Taylor & Francis Journals, vol. 9(14), pages 933-937.
    • Handle: RePEc:taf:apeclt:v:9:y:2002:i:14:p:933-937
    DOI: 10.1080/13504850210139387
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    1. Agenor, Pierre-Richard & Khan, Mohsin S., 1996. "Foreign currency deposits and the demand for money in developing countries," Journal of Development Economics, Elsevier, vol. 50(1), pages 101-118, June.
    2. Alan Carruth & Jose Roberto Sanchez-Fung, 2000. "Money demand in the Dominican Republic," Applied Economics, Taylor & Francis Journals, vol. 32(11), pages 1439-1449.
    3. Siem Jan Koopman & Neil Shephard & Jurgen A. Doornik, 1999. "Statistical algorithms for models in state space using SsfPack 2.2," Econometrics Journal, Royal Economic Society, vol. 2(1), pages 107-160.
    4. Pierre-Richard Agénor & Mark P. Taylor, 1992. "Testing for Credibility Effects," IMF Staff Papers, Palgrave Macmillan, vol. 39(3), pages 545-571, September.
    5. Charles Nolan & Eric Schaling, 1996. "Monetary Policy Uncertainty and Central Bank Accountability," Bank of England working papers 54, Bank of England.
    6. McLaren, John, 1998. "Black Markets and Optimal Evadable Taxation," Economic Journal, Royal Economic Society, vol. 108(448), pages 665-679, May.
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    Cited by:

    1. Sanchez-Fung Jose R., 2003. "Monetary Policy Reaction Dynamics In A Developing Economy: Evidence For The Dominican Republic," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 3(1).
    2. Susan Pozo & Jose R. Sánchez-Fung & Amelia U. Santos-Paulino, 2010. "Economic Development Strategies in the Dominican Republic," WIDER Working Paper Series wp-2010-115, World Institute for Development Economic Research (UNU-WIDER).

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