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Are stabilization programs expansionary?

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  • Federico Echenique
  • Alvaro Forteza

Abstract

The empirical evidence presented in this paper casts serious doubts on the by now widely accepted "stylized facts" of the exchange rate based stabilization programs (ERBS) as they are stated in Kiguel and Liviatan (1992) and in Végh (1992). Even though the ERBS programs were associated with output booms, no evidence of booms provoked by the stabilization programs is found. Rather, exogenous capital inflows to Latin America seem to have caused both the output booms and the stabilization programs. Other stylized facts, namely that the ERBS programs cause real exchange rate appreciations and trade account deficits are not rejected by the analysis presented in this paper.

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Bibliographic Info

Paper provided by Department of Economics - dECON in its series Documentos de Trabajo (working papers) with number 0196.

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Length: 23 pages
Date of creation: 1996
Date of revision:
Handle: RePEc:ude:wpaper:0196

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References

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  1. Jorge E. Roldós, 1995. "Supply-Side Effects of Disinflation Programs," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 158-183, March.
  2. Casella, Alessandra & Eichengreen, Barry, 1996. "Can Foreign Aid Accelerate Stabilisation?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 106(436), pages 605-19, May.
  3. Sergio Rebelo & Carlos A. Vegh, 1995. "Real Effects of Exchange-Rate-Based Stabilization: An Analysis of Competing Theories," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 125-188 National Bureau of Economic Research, Inc.
  4. Orphanides, Athanasios, 1996. "The timing of stabilizations," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 20(1-3), pages 257-279.
  5. Federico Echenique & Alvaro Forteza, 1996. "Are stabilization programs expansionary?," Documentos de Trabajo (working papers), Department of Economics - dECON 0196, Department of Economics - dECON.
  6. Elhanan Helpman & Assaf Razin, 1985. "Exchange Rate Management: Intertemporal Tradoffs," NBER Working Papers 1590, National Bureau of Economic Research, Inc.
  7. Adriana Cassoni, 1996. "A bargaining model with uncertainty and varying outside opportunities," Documentos de Trabajo (working papers), Department of Economics - dECON 1096, Department of Economics - dECON.
  8. repec:imf:imfpdp:9310 is not listed on IDEAS
  9. Elvio Accinelli & Martín Puchet, 1996. "An application of the catastrophe theory in general equilibrium theory," Documentos de Trabajo (working papers), Department of Economics - dECON 0296, Department of Economics - dECON.
  10. Robert J. Gordon, 1982. "Why Stopping Inflation May Be Costly: Evidence from Fourteen Historical Episodes," NBER Chapters, in: Inflation: Causes and Effects, pages 11-40 National Bureau of Economic Research, Inc.
  11. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, vol. 82(4), pages 942-63, September.
  12. Leamer, Edward E, 1985. "Sensitivity Analyses Would Help," American Economic Review, American Economic Association, vol. 75(3), pages 308-13, June.
  13. Uribe, Martin, 1997. "Exchange-rate-based inflation stabilization: The initial real effects of credible plans," Journal of Monetary Economics, Elsevier, Elsevier, vol. 39(2), pages 197-221, July.
  14. Alberto Alesina & Allan Drazen, 1989. "Why are Stabilizations Delayed?," NBER Working Papers 3053, National Bureau of Economic Research, Inc.
  15. Carmen Reinhart & Guillermo Calvo & Leonardo Leiderman, 1992. "Capital Inflows to Latin America," IMF Working Papers 92/85, International Monetary Fund.
  16. Calvo, Guillermo A, 1986. "Temporary Stabilization: Predetermined Exchange Rates," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(6), pages 1319-29, December.
  17. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1994. "The capital inflows problem: Concepts and issues," MPRA Paper 13902, University Library of Munich, Germany.
  18. Michael Bruno & Guido Di Tella & Rudiger Dornbusch & Stanley Fischer, 1988. "Inflation Stabilization: The Experience of Israel, Argentina, Brazil, Bolivia, and Mexico," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022796, December.
  19. Alejandro Nin & María Inés Terra, 1996. "Mercosur: un camino a la apertura o la consolidación de un bloque cerrado?," Documentos de Trabajo (working papers), Department of Economics - dECON 0996, Department of Economics - dECON.
  20. Laurence Ball, 1993. "What Determines the Sacrifice Ratio?," NBER Working Papers 4306, National Bureau of Economic Research, Inc.
  21. Marcel Vaillant, 1996. "El GATT 94 y la Organización Mundial del Comercio. Una nueva agenda para Uruguay," Documentos de Trabajo (working papers), Department of Economics - dECON 0496, Department of Economics - dECON.
  22. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 88(1), pages 1-23, February.
  23. Reinhart, Carmen & Vegh, Carlos, 1995. "Nominal interest rates, consumption booms, and lack of credibility: A quantitative examination," MPRA Paper 13898, University Library of Munich, Germany.
  24. Reinhart, Carmen & Vegh, Carlos, 1994. "Inflation stabilization in chronic inflation countries: The empirical evidence," MPRA Paper 13689, University Library of Munich, Germany.
  25. Stanley Fischer, 1984. "Real Balances, the Exchange Rate and Indexation: Real Variables in Disinflation," NBER Working Papers 1497, National Bureau of Economic Research, Inc.
  26. Gustavo Bittencourt & Rosario Domingo, 1996. "Inversión Extranjera Directa en Uruguay: tendencias y determinantes," Documentos de Trabajo (working papers), Department of Economics - dECON 0696, Department of Economics - dECON.
  27. Fischer, Stanley, 1988. "Real Balances, the Exchange Rate, and Indexation: Real Variables in Disinflation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 103(1), pages 27-49, February.
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Citations

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Cited by:
  1. Stanley Fischer & Ratna Sahay & Carlos A. Végh Gramont, 2002. "Modern Hyper- and High Inflations," IMF Working Papers 02/197, International Monetary Fund.
  2. Alvaro Forteza, 1998. "Un modelo de simulación de la Reforma de la Seguridad Social en Uruguay," Documentos de Trabajo (working papers), Department of Economics - dECON 0598, Department of Economics - dECON.
  3. Federico Echenique & Alvaro Forteza, 1997. "Are Stabilization Programs Expansionary?," Documentos de Trabajo (working papers), Department of Economics - dECON 0497, Department of Economics - dECON.
  4. Walter García Fontes & Ruben Tansini, 1996. "The effects of trade liberalization on R&D investments: the case of the Uruguayan manufacturing industry," Documentos de Trabajo (working papers), Department of Economics - dECON 0396, Department of Economics - dECON.
  5. Forteza, Alvaro & Rama, Martin, 2001. "Labor market"rigidity"and the success of economic reforms across more than one hundred countries," Policy Research Working Paper Series 2521, The World Bank.
  6. Traversa, Federico, 2004. "Estabilización con ancla cambiaria y apertura externa en el Uruguay de la década de 1990: una combinación difícil
    [Exchange rate based stabilization and trade liberalization in Uruguay during the 1
    ," MPRA Paper 53263, University Library of Munich, Germany.
  7. Alvaro Forteza, 1995. "Welfare state dynamics," Documentos de Trabajo (working papers), Department of Economics - dECON 0896, Department of Economics - dECON.
  8. Ari Aisen, 2004. "Money-Based Versus Exchange-Rate-Based Stabilization," IMF Working Papers 04/94, International Monetary Fund.
  9. Alvaro Forteza & Martin Rama, 2006. "Labor Market 'Rigidity' and the Success of Economic Reforms Across More Than 100 Countries," Journal of Economic Policy Reform, Taylor & Francis Journals, Taylor & Francis Journals, vol. 9(1), pages 75-105.

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