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Real Balances, the Exchange Rate, and Indexation: Real Variables in Disinflation

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Author Info
Fischer, Stanley
Abstract

This paper shows first that real exchange-rate appreciation typically reduces, but may increase, the output cos ts of disinflation. The direct favorable effects of cheaper imports o n consumer prices, on the prices of imported inputs, on wage demands, and on the demand for money may be outweighed by the unemployment ca used by the trade deficit. Second, the effects of wage indexation on the costs of disinflation are reexamined. Ex ante indexation speeds u p disinflation. Ex post indexation, the type observed in practice, au tomatically increases the real wage at the start of a disinflation an d may therefore increase the sacrifice ratio. Copyright 1988, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Publisher Info
Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 103 (1988)
Issue (Month): 1 (February)
Pages: 27-49
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Handle: RePEc:tpr:qjecon:v:103:y:1988:i:1:p:27-49

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  1. Federico Echenique & Alvaro Forteza, 2000. "Are stabilization programs expansionary?," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 15(1), pages 65-89. [Downloadable!]
    Other versions:
  2. Corbo, Vittorio & Solimano, Andres, 1991. "Chile's experience with stabilization, revisited," Policy Research Working Paper Series 579, The World Bank. [Downloadable!]
  3. Sebastian Edwards, 2004. "Thirty Years of Current Account Imbalances, Current Account Reversals and Sudden Stops," NBER Working Papers 10276, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Sebastian Edwards, 2001. "Does the Current Account Matter?," NBER Working Papers 8275, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. 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!]
    Other versions:
  6. Esteban Jadresic, 1998. "The Macroeconomic Consequences of Wage Indexation Revisited," Working Papers Central Bank of Chile 35, Central Bank of Chile. [Downloadable!]
  7. Vittorio Corbo, 1998. "Reaching One-Digit Inflation: The Chilean Experience," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 123-163, November. [Downloadable!]
  8. Usman A. Afridi & Rehana Siddiqui, 1994. "Framework for Deriving Real Exchange Rates," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 33(4), pages 1099-1112. [Downloadable!]
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