Stabilization programs and policy credibility: Peru in the 1990s
AbstractThis paper uses a rational expectations macroeconomic model in which economic agents formulate the probability about the sustainability of the economic policy—that is, policy credibility—using current and lagged values of government expenditures and lagged values of the inflation rate. The estimation of the model is based on Hamilton’s switching regime procedure. The contribution of this paper is the empirical estimation of the credibility of the stabilization program implemented in Peru in August 1990. The results of the estimation show that there are two different regimes in the government expenditure process. According to the economic agents’ inferences, the stabilization program in Peru is not credible. This lack of credibility in the economic policy of the government authority explains the presence of hysteresis in currency substitution between August 1990 and June 1995. The estimation involves an expected inflation rate that includes the credibility of the economic policy in its formulation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2003-40.
Date of creation: 2003
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-02-29 (All new papers)
- NEP-HIS-2004-02-29 (Business, Economic & Financial History)
- NEP-MAC-2004-02-29 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hamilton, James D., 1990. "Analysis of time series subject to changes in regime," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 39-70.
- Hamilton, James D., 1986. "State-space models," Handbook of Econometrics, in: R. F. Engle & D. McFadden (ed.), Handbook of Econometrics, edition 1, volume 4, chapter 50, pages 3039-3080 Elsevier.
- Agenor, Pierre-Richard & Taylor, Mark P, 1993. "Analysing Credibility in High-Inflation Countries: A New Approach," Economic Journal, Royal Economic Society, vol. 103(417), pages 329-36, March.
- Engel, Charles & Hamilton, James D, 1990. "Long Swings in the Dollar: Are They in the Data and Do Markets Know It?," American Economic Review, American Economic Association, vol. 80(4), pages 689-713, September.
- Blackburn, Keith & Christensen, Michael, 1989. "Monetary Policy and Policy Credibility: Theories and Evidence," Journal of Economic Literature, American Economic Association, vol. 27(1), pages 1-45, March.
- Drazen, Allan & Masson, Paul R, 1994.
"Credibility of Policies versus Credibility of Policymakers,"
The Quarterly Journal of Economics,
MIT Press, vol. 109(3), pages 735-54, August.
- Allan Drazen & Paul R. Masson, 1993. "Credibility of Policies versus Credibility of Policymakers," NBER Working Papers 4448, National Bureau of Economic Research, Inc.
- Paul R. Masson & Allan Drazen, 1994. "Credibility of Policies Versus Credibility of Policymakers," IMF Working Papers 94/49, International Monetary Fund.
- Pierre-Richard AgÃ©nor & Mark P. Taylor, 1992.
"Testing for Credibility Effects,"
IMF Staff Papers,
Palgrave Macmillan, vol. 39(3), pages 545-571, September.
- Graciela L. Kaminsky & Leonardo Leiderman, 1993. "High real interest rates in the aftermath of disinflation: actual or expected?," Finance and Economics Discussion Series 93-33, Board of Governors of the Federal Reserve System (U.S.).
- Ruge-Murcia, Francisco J, 1995. "Credibility and Changes in Policy Regime," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 176-208, February.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Meredith Rector).
If references are entirely missing, you can add them using this form.