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Money-Based vs. Exchange-Rate-Based Stabilization: Is There Room for Political Opportunism?

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  • Ari Aisen

Abstract

In response to high and chronic inflation, countries have adopted different stabilization policies. However, the extent to which these stabilization programs were designed for political motives is not clear. Because exchange-rate-based stabilizations (ERBS) create an initial consumption boom followed by a contraction, whereas money-based stabilizations generate a consumption bust followed by a recovery, policymakers may take into account the timing of elections when determining the nominal anchor for stabilization. This paper finds strong evidence that the choice of nominal anchor depends on elections, implying the existence of political opportunism. ERBS are, on average, launched before elections, whereas MBS are set after them. IMF Staff Papers (2007) 54, 385–417. doi:10.1057/palgrave.imfsp.9450008

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  • Ari Aisen, 2007. "Money-Based vs. Exchange-Rate-Based Stabilization: Is There Room for Political Opportunism?," IMF Staff Papers, Palgrave Macmillan, vol. 54(2), pages 385-417, June.
    • Handle: RePEc:pal:imfstp:v:54:y:2007:i:2:p:385-417
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    Cited by:

    1. Peter A. Prazmowski & José R. Sánchez-Fung, 2014. "Assessing the impact of different nominal anchors on the credibility of stabilisation programmes," Journal of Applied Economics, Universidad del CEMA, vol. 17, pages 353-372, November.

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