This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

The syndrome of exchange-rate-based stabilizations and the uncertain duration of currency pegs

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Enrique G. Mendoza
Martin Uribe

Additional information is available for the following registered author(s):

Abstract

This paper shows that some key stylized facts of exchange-rate-based stabilization plans can be explained by the uncertain duration of the plans themselves. Uncertain duration is modeled to reflect evidence showing that devaluation probabilities are higher when the plans are introduced and abandoned than in the period in between. If contingent-claims markets are incomplete, this uncertain duration distortion introduces temporary fiscal cuts with large wealth effects. Investment and employment are also distorted, and the resulting supply-side effects play a critical role. Stabilizations of uncertain duration entail large welfare costs, but they are preferred to persistent high inflation. Mexico's experience is examined in the light of these predictions.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://minneapolisfed.org/research/DP/DP121.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Federal Reserve Bank of Minneapolis in its series Discussion Paper / Institute for Empirical Macroeconomics with number 121.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 1997
Date of revision:
Handle: RePEc:fip:fedmem:121

Contact details of provider:
Postal: 90 Hennepin Avenue, P.O. Box 291, Minneapolis, MN 55480-0291
Phone: (612) 204-5000
Web page: http://minneapolisfed.org/
More information through EDIRC

Order Information:
Email:
Web: http://www.minneapolisfed.org/pubs/

For technical questions regarding this item, or to correct its listing, contact: (Diane Rosenberger).

Related research
Keywords: Money ; Foreign exchange - Law and legislation ; Foreign exchange rates;

Other versions of this item:

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
  1. Cunha, Alexandre B., 2002. "Optimal Exchange Rate Policy, Optimal Incomplete Taxation and Business Cycles," Ibmec Working Papers wpe_16, Ibmec Working Paper, Ibmec São Paulo. [Downloadable!]
    Other versions:
  2. Norbert Fiess & Marco fugazza & William Maloney, 2002. "Exchange Rate Appreciations, Labor Market Rigidities, and Informality," Working Papers 2005_15, Department of Economics, University of Glasgow. [Downloadable!]
    Other versions:
  3. Edward F. Buffie & Manoj Atolia, 2005. "Exchange-Rate-Based Stabilization, Durables Consumption, and the Stylized Facts," Working Papers wp2005_12_01, Department of Economics, Florida State University, revised Jan 2009. [Downloadable!]
  4. Steven B. Kamin, 1996. "Real exchange rates and inflation in exchange-rate based stabilizations: an empirical examination," International Finance Discussion Papers 554, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  5. Marla Ripoll, 2005. "Real Exchange Rate Targeting, Macroeconomic Performance and Sectoral Income Distribution in Developing Countries," Journal of International Trade & Economic Development, Taylor and Francis Journals, vol. 14(2), pages 167-196, June. [Downloadable!] (restricted)
  6. Cunha, Alexandre B., 2002. "Optimal Exchange Rate Policy and Business Cycles," Ibmec Working Papers wpe_19, Ibmec Working Paper, Ibmec São Paulo. [Downloadable!]
  7. Manoj Atolia & Edward F. Buffie, 2006. "Exchange-Rate-Based Stabilization, Durables Consumption, and Stylized Facts," Computing in Economics and Finance 2006 416, Society for Computational Economics. [Downloadable!]
  8. Kolver Hernandez, 2006. "State-Dependent Nominal Rigidities & Disinflation Programs in Small Open Economies," Working Papers 06-13, University of Delaware, Department of Economics. [Downloadable!]
  9. Steven B. Kamin & Marc Klau, 1998. "Some multi-country evidence on the effects of real exchange rates on output," International Finance Discussion Papers 611, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  10. Steven B. Kamin & John H. Rogers, 1997. "Output and the real exchange rate in developing countries: an application to Mexico," International Finance Discussion Papers 580, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  11. Kolver Hernandez, 2004. "State-Dependent Nominal Rigidities & Disinflation Programs in Small Open Economies," Macroeconomics 0411021, EconWPA. [Downloadable!]
  12. Martin Uribe, 1996. "The Tequila effect: theory and evidence from Argentina," International Finance Discussion Papers 552, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  13. Francisco Venegas-Martínez, 2005. "Temporary Stabilization and the Real Option of Waiting when Consumption can be Delayed: an Extreme Value Approach," DEGIT Conference Papers c010_043, DEGIT, Dynamics, Economic Growth, and International Trade. [Downloadable!]
  14. 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.). [Downloadable!]
Statistics
Access and download statistics

Did you know? IDEAS indexes over 800000 items of research in Economics alone.

This page was last updated on 2009-10-24.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.