IDEAS home Printed from https://ideas.repec.org/a/oup/restud/v52y1985i4p605-625..html
   My bibliography  Save this article

The Capital Inflows Problem Revisited: A Stylized Model of Southern Cone Disinflation

Author

Listed:
  • Maurice Obstfeld

Abstract

In the late 1970s, countries in Latin America's Southern Cone initiated attempts to lower domestic inflation rates through the progressive reduction of a preannounced rate of exchange-rate devaluation. The stabilization programs gave rise to massive capital inflows, real exchange-rate appreciation, and current-account deficits. This paper develops a stylized intertemporal framework in which the effects of a credible preannounced disinflation scheme can be studied. It is shown that even when agents have perfect foresight and markets clear continuously, the "capital inflows" phenomenon and the associated real appreciation may result. While unanticipated, permanent inflation changes are neutral in the paper, anticipated inflation is neutral only in exceptional circumstances. A preannounced disinflation operates by altering the path of an expenditure-based real domestic interest rate that depends on expected changes in the prices of liquidity services and nontradable consumption goods.

Suggested Citation

  • Maurice Obstfeld, 1985. "The Capital Inflows Problem Revisited: A Stylized Model of Southern Cone Disinflation," Review of Economic Studies, Oxford University Press, vol. 52(4), pages 605-625.
  • Handle: RePEc:oup:restud:v:52:y:1985:i:4:p:605-625.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.2307/2297735
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Pedro Aspe Armella & Rudiger Dornbusch & Maurice Obstfeld, 1983. "Introduction to "Financial Policies and the World Capital Market: The Problem of Latin American Countries"," NBER Chapters, in: Financial Policies and the World Capital Market: The Problem of Latin American Countries, pages 1-4, National Bureau of Economic Research, Inc.
    2. Fischer, Stanley, 1979. "Capital Accumulation on the Transition Path in a Monetary Optimizing Model," Econometrica, Econometric Society, vol. 47(6), pages 1433-1439, November.
    3. Pedro Aspe Armella & Rudiger Dornbusch & Maurice Obstfeld, 1983. "Financial Policies and the World Capital Market: The Problem of Latin American Countries," NBER Books, National Bureau of Economic Research, Inc, number arme83-1.
    4. Weiss, Laurence M, 1980. "The Effects of Money Supply on Economic Welfare in the Steady State," Econometrica, Econometric Society, vol. 48(3), pages 565-576, April.
    5. Bruno, Michael, 1976. "The Two-Sector Open Economy and the Real Exchange Rate," American Economic Review, American Economic Association, vol. 66(4), pages 566-577, September.
    6. Jacob A. Frenkel & Rudiger Dornbusch & William H. Branson & Ricardo H. Arriazu, 1983. "Panel Discussion on Southern Cone," IMF Staff Papers, Palgrave Macmillan, vol. 30(1), pages 164-184, March.
    7. Dornbusch, Rudiger, 1983. "Real Interest Rates, Home Goods, and Optimal External Borrowing," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 141-153, February.
    8. Samuelson, Paul A & Sato, Ryuzo, 1984. "Unattainability of Integrability and Definiteness Conditions in the General Case of Demand for Money and Goods," American Economic Review, American Economic Association, vol. 74(4), pages 588-604, September.
    9. Obstfeld, Maurice, 1983. "Intertemporal price speculation and the optimal current-account deficit," Journal of International Money and Finance, Elsevier, vol. 2(2), pages 135-145, August.
    10. Gray, Jo Anna, 1984. "Dynamic Instability in Rational Expectations Models: An Attempt to Clarify," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 93-122, February.
    11. Rodriguez, Carlos Alfredo, 1982. "The Argentine stabilization plan of December 20th," World Development, Elsevier, vol. 10(9), pages 801-811, September.
    12. Deaton,Angus & Muellbauer,John, 1980. "Economics and Consumer Behavior," Cambridge Books, Cambridge University Press, number 9780521296762.
    13. Samuelson, Paul A & Swamy, S, 1974. "Invariant Economic Index Numbers and Canonical Duality: Survey and Synthesis," American Economic Review, American Economic Association, vol. 64(4), pages 566-593, September.
    14. David K. H. Begg, 1980. "Rational Expectations and the Non-neutrality of Systematic Monetary Policy," Review of Economic Studies, Oxford University Press, vol. 47(2), pages 293-303.
    15. Fischer, Stanley, 1979. "Anticipations and the Nonneutrality of Money," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 225-252, April.
    16. R. Dornbusch, 1984. "External Debt, Budget Deficits and Disequilibrium Exchange Rates," Working papers 347, Massachusetts Institute of Technology (MIT), Department of Economics.
    17. Brock, William A, 1974. "Money and Growth: The Case of Long Run Perfect Foresight," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(3), pages 750-777, October.
    18. Svensson, Lars E O & Razin, Assaf, 1983. "The Terms of Trade and the Current Account: The Harberger-Laursen-Metzler Effect," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 97-125, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tarlok Singh, 2007. "Intertemporal Optimizing Models Of Trade And Current Account Balance: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 21(1), pages 25-64, February.
    2. Alogoskoufis, G.S. & van der Ploeg, F., 1991. "Money and growth revisited," Discussion Paper 1991-9, Tilburg University, Center for Economic Research.
    3. Tom Kompas & Omar Abdel-Razeq, 2001. "A Simple Monetary Growth Model with Variable Rates of Time Preference," International and Development Economics Working Papers idec01-10, International and Development Economics.
    4. Maurice Obstfeld, 1986. "Capital Flows, the Current Account, and the Real Exchange Rate: Some Consequences of Stabilization and Liberalization," NBER Chapters, in: Economic Adjustment and Exchange Rates in Developing Countries, pages 201-232, National Bureau of Economic Research, Inc.
    5. Philip L. Brock, 2009. "Collateral Constraints and Macroeconomic Adjustment in an Open Economy," Working Papers UWEC-2009-03, University of Washington, Department of Economics.
    6. Davis, George K. & Miller, Norman C., 1996. "Exchange rate mean reversion from real shocks within an intertemporal equilibrium model," Journal of International Money and Finance, Elsevier, vol. 15(6), pages 947-967, December.
    7. van der Ploeg, F., 1988. "Monetary and fiscal policy in interdependent economies with capital accumulation, death and population growth," Other publications TiSEM 0f2e8d07-235f-4801-8a3b-5, Tilburg University, School of Economics and Management.
    8. Chen Fang & Po-Sheng Lin, 2013. "Traded Bond Denominations, Shock Persistence and Current Account Dynamics: Another Look at the Harberger–Laursen–Metzler Effect," Pacific Economic Review, Wiley Blackwell, vol. 18(4), pages 502-529, October.
    9. Obstfeld, Maurice & Rogoff, Kenneth, 1983. "Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 675-687, August.
    10. Ragnar Torvik, 1997. "Real exchange rate dynamics and trade liberalization: the case of multiple tariffs and unemployment," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 6(3), pages 329-344.
    11. Piersanti, Giovanni, 2012. "The Macroeconomic Theory of Exchange Rate Crises," OUP Catalogue, Oxford University Press, number 9780199653126.
    12. R. Dornbusch, 1984. "External Debt, Budget Deficits and Disequilibrium Exchange Rates," Working papers 347, Massachusetts Institute of Technology (MIT), Department of Economics.
    13. Serven, Luis, 1999. "Terms-of-trade shocks and optimal investment: another look at the Laursen-Metzler effect," Journal of International Money and Finance, Elsevier, vol. 18(3), pages 337-365.
    14. CARDI, Oliver & BERTINELLI, Luisito, 2004. "A formal model of krugman’s intuition on the J-curve," LIDAM Discussion Papers CORE 2004043, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    15. Singh, Tarlok, 2004. "On the optimizing model of the balance of trade in India," Journal of Policy Modeling, Elsevier, vol. 26(5), pages 605-625, July.
    16. Cardi, Olivier, 2007. "Another View Of The J-Curve," Macroeconomic Dynamics, Cambridge University Press, vol. 11(2), pages 153-174, April.
    17. International Monetary Fund, 1999. "Macroeconomic and Sectoral Effects of Terms-of-Trade Shocks: The Experience of the Oil-Exporting Developing Countries," IMF Working Papers 1999/134, International Monetary Fund.
    18. LAL, Deepak & van Wijnbergen, Sweder, 1985. "Government deficits, the real interest rate and LDC debt : On global crowding out," European Economic Review, Elsevier, vol. 29(2), pages 157-191.
    19. Stefan Homburg, 2015. "Superneutrality of Money under Open Market Operations," CESifo Working Paper Series 5219, CESifo.
    20. Michener, Ronald & Ravikumar, B., 1998. "Chaotic dynamics in a cash-in-advance economy," Journal of Economic Dynamics and Control, Elsevier, vol. 22(7), pages 1117-1137, May.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:restud:v:52:y:1985:i:4:p:605-625.. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://academic.oup.com/restud .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://academic.oup.com/restud .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.