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Stabilization, credibility and regime dependent real exchange rates

Author

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  • Prazmowski, Peter A.

    (Kingston University London)

Abstract

This paper studies a dynamic error correction model (ECM) highlighting the consequences of regime changes and of credibility on the performance of real exchange rates during stabilization. The analysis shows that the structural parameters of the ECM, from which an equilibrium real exchange rate is calculated, will be subject to structural breaks reflecting regime and credibility changes. Empirical evidence is presented on the Mexican 1988 and 1995 stabilization episodes.

Suggested Citation

  • Prazmowski, Peter A., 2006. "Stabilization, credibility and regime dependent real exchange rates," Economics Discussion Papers 2006-1, School of Economics, Kingston University London.
    • Handle: RePEc:ris:kngedp:2006_001
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    File URL: http://eprints.kingston.ac.uk/1607/1/Prazmowski-P-1607.pdf
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    More about this item

    Keywords

    equilibrium real exchanges rates; inflation stabilization; credibility; regime changes; ECM; Mexico;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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