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On Credible Disinflation

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  • Mr. Jorge Roldos

Abstract

We study the effects of a credible, gradual exchange rate based disinflation program in a two sector economy. After an initial real exchange rate depreciation, the reductions in the rate of devaluation reduce the monetary wedge generated by a cash in advance constraint, leading to a gradual increase in absorption that yields progressive real exchange rate appreciations and current account deficits. An initial boom in economic activity is not followed by a later contraction, as labor supply expands during the whole length of the program.

Suggested Citation

  • Mr. Jorge Roldos, 1993. "On Credible Disinflation," IMF Working Papers 1993/090, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:1993/090
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    References listed on IDEAS

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    5. Reinhart, Carmen & Vegh, Carlos, 1994. "Inflation stabilization in chronic inflation countries: The empirical evidence," MPRA Paper 13689, University Library of Munich, Germany.
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    Cited by:

    1. Reinhart, Carmen & Vegh, Carlos, 1994. "Inflation stabilization in chronic inflation countries: The empirical evidence," MPRA Paper 13689, University Library of Munich, Germany.
    2. 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.).
    3. Sergio Rebelo & Carlos A. Végh, 1995. "Real Effects of Exchange-Rate-Based Stabilization: An Analysis of Competing Theories," NBER Chapters, in: NBER Macroeconomics Annual 1995, Volume 10, pages 125-188, National Bureau of Economic Research, Inc.
    4. Alexander W. Hoffmaister & Carlos A. Végh, 1996. "Disinflation and The Recession-Now-versus-Recession-Later Hypothesis: Evidence from Uruguay," IMF Staff Papers, Palgrave Macmillan, vol. 43(2), pages 355-394, June.
    5. David M. Gould, 1996. "Does the choice of nominal anchor matter?," Working Papers 9611, Federal Reserve Bank of Dallas.
    6. Reinhart, Carmen M. & Vegh, Carlos A., 1995. "Nominal interest rates, consumption booms, and lack of credibility: A quantitative examination," Journal of Development Economics, Elsevier, vol. 46(2), pages 357-378, April.

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