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Inflation Stabilization and the Consumption of Durable Goods

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Author Info
José De Gregorio ()
Pablo E. Guidotti
Carlos A. Végh

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Abstract

Exchange rate-based stabilizations in chronic-inflation countries have often been characterized by an initial consumption boom (which is most evident in the behavior of durable goods) followed by a later contraction. This paper provides an explanation for such a boom-recession cycle based on the timing of purchases of durable goods. The initial fall in inflation results in a wealth effect wich induces many consumers to bring forward their consumption boom. Since most consumers replenish their stock of durable goods at the beginning of the program, a later slowdown follows.

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Paper provided by Centro de Economía Aplicada, Universidad de Chile in its series Documentos de Trabajo with number 26.

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Date of creation: 1998
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Handle: RePEc:edj:ceauch:26

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  1. John Fender & Neil Rankin, 2006. " Disinflation in an Open-Economy Staggered-Wage DGE Model: Exchange-Rate Pegging, Booms and the Role of Preannouncement," CDMA Working Paper Series 0610, Centre for Dynamic Macroeconomic Analysis. [Downloadable!]
  2. 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!]
  3. Francisco Venegas Martínez, 2005. "Política fiscal, estabilización de precios y mercado incompletos," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 20(1), pages 3-25. [Downloadable!]
  4. Talan Iscan, 1999. "Present Value Tests of the Current Account with Durables Consumption," Department of Economics at Dalhousie University working papers archive present, Dalhousie, Department of Economics. [Downloadable!]
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  5. Norbert Fiess & Marco fugazza & William Maloney, 2002. "Exchange Rate Appreciations, Labor Market Rigidities, and Informality," Working Papers 2005_15, Department of Economics, University of Glasgow. [Downloadable!]
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  6. Oya Celasun, 2003. "Sticky Inflation and the Real Effects of Exchange Rate Based Stabilization," IMF Working Papers 03/151, International Monetary Fund. [Downloadable!]
  7. Edward F. Buffie & Manoj Atolia, 2006. "Resurrecting the Weak Credibility Hypothesis in Models of Exchange-Rate-Based Stabilization," Working Papers wp2009_01_03, Department of Economics, Florida State University, revised Aug 2007. [Downloadable!]
  8. Arman Mansoorian & Mohammed Mohsin, 2008. "Durable Goods, Time Preference and The Dynamics of the Current Account," Open Economies Review, Springer, vol. 19(3), pages 337-354, July. [Downloadable!] (restricted)
  9. 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. [Downloadable!] (restricted)
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  10. Laurence Ball, 1993. "The Dynamics of High Inflation," NBER Working Papers 4578, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. 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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  12. Edward F. Buffie & Manoj Atolia, 2005. "Exchange-Rate-Based Stabilization, Durables Consumption, and the Stylized Facts," Working Papers wp2005_12_01, Department of Economics, Florida State University, revised Jan 2009. [Downloadable!]
  13. Marc Hofstetter, 2007. "Disinflating From Moderate Inflation," DOCUMENTOS CEDE 002373, UNIVERSIDAD DE LOS ANDES-CEDE. [Downloadable!]
  14. John V. Leahy & Joseph Zeira, 2000. "The Timing of Purchases and Aggregate Fluctuations," NBER Working Papers 7672, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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