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Credit and Exchange Rate-Based Stabilization


  • May Y Khamis


This paper examines the behavior of private sector credit in chronic inflation countries that undergo exchange rate-based inflation stabilizations. It concludes that these programs are characterized by a strong increase in private sector credit, both in absolute terms and as a fraction of real economic activity. Empirical results using data for Mexico, Chile, Argentina, and Israel support a negative statistically significant relationship between credit and inflation for Mexico, Argentina, and Chile, but not for Israel. In addition, for both Chile and Mexico, dummy variables representing periods of inflation stabilization are positive and statistically different from zero indicating a stronger expansion in private sector credit during stabilization. These results could potentially explain the consumption boom that is usually present in the early stages of these programs.

Suggested Citation

  • May Y Khamis, 1996. "Credit and Exchange Rate-Based Stabilization," IMF Working Papers 96/51, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:96/51

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    References listed on IDEAS

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    Cited by:

    1. C. A. E. Goodhart & Miguel A. Segoviano Basurto & Boris Hofmann, 2006. "Default, Credit Growth, and Asset Prices," IMF Working Papers 06/223, International Monetary Fund.
    2. Adam Koronowski, 2009. "Divergent business cycles as an effect of a monetary union," International Economics and Economic Policy, Springer, vol. 6(2), pages 103-113, July.
    3. Demirguc-Kunt, Asli & Detragiache, Enrica, 1997. "The determinants of banking crises : evidence from industrial and developing countries," Policy Research Working Paper Series 1828, The World Bank.
    4. Isik, Ihsan & Hassan, M. Kabir, 2003. "Financial disruption and bank productivity: The 1994 experience of Turkish banks," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(2), pages 291-320.
    5. Asli Demirgüç-Kunt & Enrica Detragiache, 1997. "The Determinants of Banking Crises; Evidence From Developing and Developed Countries," IMF Working Papers 97/106, International Monetary Fund.
    6. Adam Koronowski, 2014. "Dual Currency System as a Solution to the Eurozone Crisis," Gospodarka Narodowa, Warsaw School of Economics, issue 2, pages 5-23.


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