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Exchange rate preannouncement and economic activity: A note on southern cone stabilization attempts

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  • Rama, Martin

Abstract

This paper analyzes the macroeconomic consequences of stabilization policies based on the preannouncement of the devaluation rate, like those adopted in the Southern Cone by the end of the 1970s. The paper stands on one of the main theoretical approaches to this issue, which assumes a nominal rigidity (namely, staggered price setting) in the market for domestic goods. The approach is generalized by assuming a real rigidity in the labor market, thus leading to "disequilibrium" dynamics. It is shown, particularly, that the exchange rate preannouncement gives rise to an economic boom first, and to Keynesian unemployment later on.

Suggested Citation

  • Rama, Martin, 1992. "Exchange rate preannouncement and economic activity: A note on southern cone stabilization attempts," Journal of Macroeconomics, Elsevier, vol. 14(3), pages 509-524.
    • Handle: RePEc:eee:jmacro:v:14:y:1992:i:3:p:509-524
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