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On the Political Economy of Temporary Stabilization Programs

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  • Laura Alfaro

Abstract

This paper provides a political economy explanation for temporary exchange-rate-based stabilization programs by focusing on the distributional effects of real exchange-rate appreciation. I propose an economy in which agents are endowed with either tradable or non-tradable goods. Under a cash-in-advance assumption, a temporary reduction in the devaluation rate induces a consumption boom accompanied by real appreciation, which hurts the owners of tradable goods. The owners of non-tradables have to weigh two opposing effects: an increase in the present value of non-tradable goods wealth and a negative intertemporal substitution effect. For reasonable parameter values, owners of non-tradables are better off. Copyright 2002 Blackwell Publishers Ltd..

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  • Laura Alfaro, 2002. "On the Political Economy of Temporary Stabilization Programs," Economics and Politics, Wiley Blackwell, vol. 14(2), pages 133-161, July.
  • Handle: RePEc:bla:ecopol:v:14:y:2002:i:2:p:133-161
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    Cited by:

    1. Lim, Jamus Jerome, 2006. "Special Interests, Regime Choice, and Currency Collapse," MPRA Paper 5516, University Library of Munich, Germany, revised 2007.
    2. Ahmet Faruk Aysan, 2006. "Distributional Effects of Boom-Bust Cycles in Developing Countries with FinancialFrictions," Working Papers 2006/10, Bogazici University, Department of Economics.
    3. Ghassan Dibeh, 2014. "The Political Economy of Monetary Policy in Resource-Rich Arab Economies," Working Papers 896, Economic Research Forum, revised Dec 2014.
    4. Vladimir Klyuev, 2003. "The Distributional Consequences of Real Exchange Rate Adjustment," IMF Working Papers 03/133, International Monetary Fund.
    5. Terra, Maria Cristina T., 2007. "The political economy of exchange rate in Brazil," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 656, FGV/EPGE - Escola Brasileira de Economia e Finan├žas, Getulio Vargas Foundation (Brazil).

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