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Promises, Promises: Credible Policy Reform via Signaling

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Dani Rodrik

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Abstract

Empirical experience and theory both suggest that policy reforms can be aborted or reversed if they lack sufficient credibility, One reason for such credibility problems is the legitimate doubt regarding how serious the government really is about :he reform process. This paper considers a framework in which the private sector is unable to distinguish between a genuinely reformist government and its nemesis, a government which simply feigns interest in reform because it is a precondition for foreign assistance The general conclusion is that the rate at which reforms are introduced may serve to convey the government's future intentions, and hence act as a signal of its "type". More specifically, credible policy reform may require going overboard: the government will have to go much farther than it would have chosen to in the absence of the credibility problem.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2600.

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Date of creation: May 1988
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Handle: RePEc:nbr:nberwo:2600

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  1. Persson, Torsten & van Wijnbergen, Sweder, 1993. "Signalling, Wage Controls and Monetary Disinflation Policy," Economic Journal, Royal Economic Society, vol. 103(416), pages 79-97, January. [Downloadable!] (restricted)
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  2. Rodrik, Dani, 1987. "Trade and capital-account liberalization in a keynesian economy," Journal of International Economics, Elsevier, vol. 23(1-2), pages 113-129, August. [Downloadable!] (restricted)
  3. Robert J. Barro & David B. Gordon, 1983. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Alesina, Alberto, 1987. "Macroeconomic Policy in a Two-Party System as a Repeated Game," The Quarterly Journal of Economics, MIT Press, vol. 102(3), pages 651-78, August. [Downloadable!] (restricted)
  5. Staiger, Robert W & Tabellini, Guido, 1987. "Discretionary Trade Policy and Excessive Protection," American Economic Review, American Economic Association, vol. 77(5), pages 823-37, December. [Downloadable!] (restricted)
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  1. Matin, Kazi M., 1992. "Fiscal adjustment and the real exchange rate : the case of Bangladesh," Policy Research Working Paper Series 850, The World Bank. [Downloadable!]
  2. Azam, Jean-Paul & Bates, Robert & Biais, Bruno, 2009. "Political Predation and Economic Development," IDEI Working Papers 342, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
    Other versions:
  3. Calderon-Madrid, Angel & Voicu, Alexandru, 2004. "Total Factor Productivity Growth and Job Turnover in Mexican Manufacturing Plants in the 1990s," IZA Discussion Papers 993, Institute for the Study of Labor (IZA). [Downloadable!]
  4. Joshua Aizenman, 1991. "Trade Reforms, Credibility, and Development," NBER Working Papers 3600, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Afontsev Serguey, 2002. "Endogenous Tariff Protection and the Level of Trade Distortions in Russia," EERC Working Paper Series 01-07e, EERC Research Network, Russia and CIS. [Downloadable!]
  6. Robert Tatum, 2005. "Sustaining imperfectly credible trade liberalization: Do the rate of tariff reduction and the degree of labour mobility matter?," Journal of International Trade & Economic Development, Taylor and Francis Journals, vol. 14(4), pages 407-435, December. [Downloadable!] (restricted)
    Other versions:
  7. Sugata Marjit & Arijit Mukherjee & Tarun Kabiraj, 2001. "International Joint Venture and the Technology of the Future," Keele Department of Economics Discussion Papers (1995-2001) 2001/01, Department of Economics, Keele University. [Downloadable!]
  8. Mariano Tommasi, 1995. "Economic Reforms and Political Constraints on the Time Inconsistency of Gradual Sequencing," UCLA Economics Working Papers 736, UCLA Department of Economics. [Downloadable!]
  9. Julia Worz, 2004. "Skill Intensity in Foreign Trade and Economic Growth," Tinbergen Institute Discussion Papers 04-059/2, Tinbergen Institute. [Downloadable!]
  10. Marcos A. Buscaglia, 2003. "The Political-Economy of Argentina’s Debacle," William Davidson Institute Working Papers Series 2003-594, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  11. Cesar Martinelli, 2001. "Essays on Political Economy of Political Reform," Levine's Working Paper Archive 625018000000000135, David K. Levine. [Downloadable!]
  12. Dani Rodrik, 1992. "The Rush to Free Trade in the Developing World: Why So Late? Why Now? Will it Last?," NBER Working Papers 3947, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  13. Cesar Martinelli & Mariano Tommasi, 1993. "Sequencing of Economic Reforms in the Presence of Political Constraints," UCLA Economics Working Papers 701, UCLA Department of Economics. [Downloadable!]
  14. A. Marcincin & S. van Wijnbergen, 1997. "The Impact of Czech Privatisation Methods on Enterprise Performance Incorporating Initial Selection Bias Correction," CERT Discussion Papers 9704, Centre for Economic Reform and Transformation, Heriot Watt University. [Downloadable!]
  15. Steven B. Kamin, 1991. "Exchange rate rules in support of disinflation programs in developing countries," International Finance Discussion Papers 402, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  16. Marchesi, S., 2000. "Buybacks of Domestic Debt in Public Debt Management," The Warwick Economics Research Paper Series (TWERPS) 573, University of Warwick, Department of Economics. [Downloadable!]
    Other versions:
  17. Sebastian Edwards & Daniel Lederman, 1998. "The Political Economy of Unilateral Trade Liberalization: The Case of Chile," NBER Working Papers 6510, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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