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Inflation Stabilization and the Consumption of Durable Goods

  • José De Gregorio


  • Pablo E. Guidotti
  • Carlos A. Végh

Exchange rate-based stabilizations in chronic-inflation countries have often been characterized by an initial consumption boom (which is most evident in the behavior of durable goods) followed by a later contraction. This paper provides an explanation for such a boom-recession cycle based on the timing of purchases of durable goods. The initial fall in inflation results in a wealth effect wich induces many consumers to bring forward their consumption boom. Since most consumers replenish their stock of durable goods at the beginning of the program, a later slowdown follows.

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Paper provided by Centro de Economía Aplicada, Universidad de Chile in its series Documentos de Trabajo with number 26.

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Date of creation: 1998
Date of revision:
Handle: RePEc:edj:ceauch:26
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