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.
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.
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:
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.
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.
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.
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.
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.
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.
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.
Download or read book On the Benefits of Dollarization when Stabilization Policy is Not Credible and Financial Markets are Imperfect written by Enrique G. Mendoza and published by . This book was released on 2000 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines two potential benefits that emerging economies may derive from dollarization. First, dollarization may eliminate distortions induced by the lack of credibility of monetary policy. Second, dollarization may weaken financial frictions that result in endogenous credit constraints. The analysis is based on numerical simulations of a two-sector dynamic, stochastic general equilibrium model calibrated to Mexican data. The results indicate that policy uncertainty and credit constraints are very costly distortions. The mean welfare gains of eliminating policy uncertainty range between 6.4 and 9 percent of the trend level of consumption per capita. The mean welfare gain of weakening credit frictions is about 4.6 percent.
Download or read book Inflation Targeting and Exchange Rate Management In Less Developed Countries written by Mr.Marco Airaudo and published by International Monetary Fund. This book was released on 2016-03-08 with total page 65 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze coordination of monetary and exchange rate policy in a two-sector model of a small open economy featuring imperfect substitution between domestic and foreign financial assets. Our central finding is that management of the exchange rate greatly enhances the efficacy of inflation targeting. In a flexible exchange rate system, inflation targeting incurs a high risk of indeterminacy where macroeconomic fluctuations can be driven by self-fulfilling expectations. Moreover, small inflation shocks may escalate into much larger increases in inflation ex post. Both problems disappear when the central bank leans heavily against the wind in a managed float.
Download or read book Currency Substitution in Developing Countries written by Guillermo A. Calvo and published by . This book was released on 1992 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Why Inflation Targeting written by Charles Freedman and published by International Monetary Fund. This book was released on 2009-04-01 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: This is the second chapter of a forthcoming monograph entitled "On Implementing Full-Fledged Inflation-Targeting Regimes: Saying What You Do and Doing What You Say." We begin by discussing the costs of inflation, including their role in generating boom-bust cycles. Following a general discussion of the need for a nominal anchor, we describe a specific type of monetary anchor, the inflation-targeting regime, and its two key intellectual roots-the absence of long-run trade-offs and the time-inconsistency problem. We conclude by providing a brief introduction to the way in which inflation targeting works.
Download or read book Exchange Rate Based Stabilization in Argentina and Chile written by Miguel Alberto Kiguel and published by World Bank Publications. This book was released on 1994 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: Exchange- rate- based stabilization programs supported by a sustained fiscal adjustment generally reduced long- term inflation. Success was not easy, however, because rigid adherence to the exchange rate rule many times resulted in strong overvaluation of the currency and balance- of- payments problems before stabilization was finally secured.
Download or read book An Empirical Assessment of the Exchange Rate Pass through in Mozambique written by International Monetary Fund and published by International Monetary Fund. This book was released on 2021-05-06 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: Determining the magnitude and speed of the exchange rate passthrough (ERPT) to inflation has been of paramount importance for policy-makers in developed and emerging economies. This paper estimates the exchange rate passthrough in Mozambique using econometric techniques on a sample spanning from 2001 to 2019. Results suggest that the ERPT is assymetric, sizable and fast, with 50 percent of the exchange rate variations passing through to prices in less than six months. Policy-makers should continue to pursue low and stable inflation and develop a strong track record of prudent macroeconomic policies for the ERPT to decline.
Download or read book Credibility and the Dynamics of Stabilization Policy written by Mr.Guillermo Calvo and published by International Monetary Fund. This book was released on 1990-11-01 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies price stabilization policy under both predetermined and flexible exchange rates. Under predetermined exchange rates, a non-credible stabilization program results in an initial expansion of output, followed by a later recession. The initial expansion accompanies an appreciating real exchange rate. Under flexible exchange rates, the recession occurs at the beginning of the program. The real exchange rate appreciates sharply on impact but depreciates afterwards. Lack of credibility is more costly under predetermined exchange rates because the real effects are more pronounced.
