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On Credible Disinflation

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  • Mr. Jorge Roldos

Abstract

We study the effects of a credible, gradual exchange rate based disinflation program in a two sector economy. After an initial real exchange rate depreciation, the reductions in the rate of devaluation reduce the monetary wedge generated by a cash in advance constraint, leading to a gradual increase in absorption that yields progressive real exchange rate appreciations and current account deficits. An initial boom in economic activity is not followed by a later contraction, as labor supply expands during the whole length of the program.

Suggested Citation

  • Mr. Jorge Roldos, 1993. "On Credible Disinflation," IMF Working Papers 1993/090, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:1993/090
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    References listed on IDEAS

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    Cited by:

    1. Reinhart, Carmen & Vegh, Carlos, 1994. "Inflation stabilization in chronic inflation countries: The empirical evidence," MPRA Paper 13689, University Library of Munich, Germany.
    2. Reinhart, Carmen M. & Vegh, Carlos A., 1995. "Nominal interest rates, consumption booms, and lack of credibility: A quantitative examination," Journal of Development Economics, Elsevier, vol. 46(2), pages 357-378, April.
    3. Sergio Rebelo & Carlos A. Végh, 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. Martin Uribe, 1997. "Habit formation and the comovement of prices and consumption during exchange-rate based stabilization programs," International Finance Discussion Papers 598, Board of Governors of the Federal Reserve System (U.S.).
    5. David M. Gould, 1996. "Does the choice of nominal anchor matter?," Working Papers 9611, Federal Reserve Bank of Dallas.
    6. Alexander W. Hoffmaister & Carlos A. Végh, 1996. "Disinflation and The Recession-Now-versus-Recession-Later Hypothesis: Evidence from Uruguay," IMF Staff Papers, Palgrave Macmillan, vol. 43(2), pages 355-394, June.

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