Exchange Rate Based Stabilization Under Imperfect Credibility

Author : Mr.Guillermo Calvo
Publisher : International Monetary Fund
ISBN 13 : 1451849915
Total Pages : 34 pages
Book Rating : 4.12/5 ( download)

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Download or read book Exchange-Rate-Based Stabilization under Imperfect Credibility written by Mr.Guillermo Calvo and published by International Monetary Fund. This book was released on 1991-08-01 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes stabilization policy under predetermined exchange rates in a cash-in-advance, staggered-prices model. Under full credibility, a reduction in the rate of devaluation results in an immediate and permanent reduction in the inflation rate, with no effect on output or consumption. In contrast, a non-credible stabilization results in an initial expansion of output, followed by a later recession. The inflation rate of home goods remains above the rate of devaluation throughout the program, thus resulting in a sustained real exchange rate appreciation.

Author : Carlos Végh
Publisher :
ISBN 13 :
Total Pages : 34 pages
Book Rating : 4.07/5 ( download)

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Download or read book Exchange-Rate-Based Stabilization Under Imperfect Credibility written by Carlos Végh and published by . This book was released on 2006 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes stabilization policy under predetermined exchange rates in a cash-in-advance, staggered-prices model. Under full credibility, a reduction in the rate of devaluation results in an immediate and permanent reduction in the inflation rate, with no effect on output or consumption. In contrast, a non-credible stabilization results in an initial expansion of output, followed by a later recession. The inflation rate of home goods remains above the rate of devaluation throughout the program, thus resulting in a sustained real exchange rate appreciation.

Author : Guillermo Calvo
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.17/5 ( download)

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Download or read book Exchange Rate Based Stabilization Under Imperfect Credibility written by Guillermo Calvo and published by . This book was released on 1991 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Author : Mr.R. Armando Morales
Publisher : International Monetary Fund
ISBN 13 : 1451841876
Total Pages : 19 pages
Book Rating : 4.79/5 ( download)

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Download or read book Exchange Rate Uncertainty in Money-Based Stabilization Programs written by Mr.R. Armando Morales and published by International Monetary Fund. This book was released on 1998-01-01 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: Complementing the explanation provided by Calvo and Vegh (1994) for money-based stabilization programs, exchange rate uncertainty introduced to a particular version of the portfolio approach with imperfect competition in the banking system leads to a bias toward appreciation that is directly related to the divergence of expectations and that dampens the interaction between portfolio movements and the real exchange rate. Based on Frankel-Froot, uncertainty exists when the fundamental equilibrium real exchange rate is temporarily unknown in a foreign exchange market with two types of agents: ‘parity-guessers,’ who expect a jump to a reference parity level, and ‘money-followers,’ who expect nominal depreciation equal to the monetary rule.

Author : Guillermo A. Calvo
Publisher :
ISBN 13 :
Total Pages : 27 pages
Book Rating : 4.38/5 ( download)

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Download or read book Interest Rate Rules, Inflation Stabilization, and Imperfect Credibility written by Guillermo A. Calvo and published by . This book was released on 2007 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: "The paper examines the robustness of Interest Rate Rules, IRRs, in the context of an imperfectly credible stabilization program, closely following the format of much of the literature in open-economy models, e.g., Calvo and V̌gh (1993 and 1999). A basic result is that IRRs, like Exchange Rate Based Stabilization, ERBS, programs, could give rise to macroeconomic distortion, e.g., underutilization of capacity and real exchange rate misalignment. However, while under imperfect credibility EBRS is associated with overheating and current account deficits, IRRs give rise to somewhat opposite results. Moreover, the paper shows that popular policies to counteract misalignment, like Strategic Foreign Exchange Market Intervention or Controls on International Capital Mobility may not be effective or could even become counterproductive. The bottom line is that the greater exchange rate flexibility granted by IRRs is by far not a sure shot against the macroeconomic costs infringed by imperfect credibility."--abstract.

Author : Pierre-Richard Agénor
Publisher : International Monetary Fund
ISBN 13 : 1451849664
Total Pages : 39 pages
Book Rating : 4.60/5 ( download)

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Download or read book The Behavior of Real Interest Rates in Exchange-Rate Based Stabilization Programs written by Pierre-Richard Agénor and published by International Monetary Fund. This book was released on 1994-06-01 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the behavior of real interest rates in exchange-rate based stabilization programs. The analysis is based on a model with imperfect capital mobility and optimizing agents. A permanent reduction in the devaluation rate is first shown to have an ambiguous effect on real interest rates on impact. The analysis is then extended to consider a stabilization program characterized by an initial reduction in the rate of devaluation of the nominal exchange rate, and the announcement of a future increase in income taxes. The impact effect on real interest rates is shown to depend upon the degree of credibility of the announcement. Real interest rates may fall if agents do not believe that taxes will be raised, and rise if the future tax reform is sufficiently credible.

Author : Gustavo Adler
Publisher : International Monetary Fund
ISBN 13 : 1475547234
Total Pages : 40 pages
Book Rating : 4.38/5 ( download)

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Download or read book Foreign Exchange Intervention under Policy Uncertainty written by Gustavo Adler and published by International Monetary Fund. This book was released on 2016-03-23 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the use of foreign exchange (FX) intervention as an additional policy instrument in an environment with learning, where agents infer the central bank policy rules from its policy actions. Under full information, a central bank focused on stabilizing output and inflation can achieve better outcomes by using FX intervention as an additional policy tool. Under policy uncertainty, where agents perceive that monetary policy may also have exchange rate stabilization goals, the use of FX intervention entails a trade-off, reducing output volatility while increasing inflation volatility. While having an additional policy tool is always beneficial, we find that the optimal magnitude of intervention is higher in monetary policy regimes with lower uncertainty. These results indicate that the benefits of using FX intervention as an additional stabilization tool are greater in regimes where monetary policy is credibly focused on output and inflation stabilization.

Author : Yuri Vladimirovich Sobolev
Publisher :
ISBN 13 :
Total Pages : 44 pages
Book Rating : 4.93/5 ( download)

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Download or read book Exchange-rate-based Stabilization written by Yuri Vladimirovich Sobolev and published by . This book was released on 2000 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: The International Monetary Fund (IMF) presents the full text of an article entitled "Exchange-Rate-Based Stabilization: A Model of Financial Fragility," by Yuri V. Sobolev and published June 2000. The article discusses the interactions between banks and open capital account. Model dynamics simulation shows that remonetization in the wake of disinflation increases loanable funds supply and translates into bank credit expansion financed by capital inflows.

Author : Mr.A. Javier Hamann
Publisher : International Monetary Fund
ISBN 13 : 1451855362
Total Pages : 29 pages
Book Rating : 4.64/5 ( download)

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Download or read book Exchange-Rate-Based Stabilization written by Mr.A. Javier Hamann and published by International Monetary Fund. This book was released on 1999-10-01 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: Do exchange-rate-based stabilizations generate distinctive economic dynamics? To address this question, this paper identifies stabilization episodes using criteria that differ from those in previous empirical studies of exchange-rate-based stabilizations. We find that, while some differences can be detected between exchange-rate-based stabilizations and stabilizations where the exchange rate is not the anchor, the behavior of important variables does not appear to differ—especially output growth, which is good in both cases. There is also no evidence that fiscal discipline is enhanced by adopting an exchange-rate anchor, or that there are any systematic differences in the success records of stabilizations that use the exchange rate as a nominal anchor and those that do not.

Author : Pierre-Richard Agenor
Publisher :
ISBN 13 :
Total Pages : 46 pages
Book Rating : 4.92/5 ( download)

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Download or read book The Behavior of Real Interest Rates in Exchange-Rate Based Stabilization Programs written by Pierre-Richard Agenor and published by . This book was released on 2006 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the behavior of real interest rates in exchange-rate based stabilization programs. The analysis is based on a model with imperfect capital mobility and optimizing agents. A permanent reduction in the devaluation rate is first shown to have an ambiguous effect on real interest rates on impact. The analysis is then extended to consider a stabilization program characterized by an initial reduction in the rate of devaluation of the nominal exchange rate, and the announcement of a future increase in income taxes. The impact effect on real interest rates is shown to depend upon the degree of credibility of the announcement. Real interest rates may fall if agents do not believe that taxes will be raised, and rise if the future tax reform is sufficiently credible.