INFLATION STABILIZATION AND NOMINAL ANCHORS
This paper analyzes the choice of a nominal anchor in disinflation programs in chronic inflation countries. Both theory and evidence suggest several conclusions. (i) The recessionary effects associated with disinflation appear in the early stages of money-based programs but only in the late stages of exchange rate-based programs. (ii) Lack of credibility is more disruptive under fixed exchange rates than under floating exchange rates. (iii) Attempting to pursue a disinflationary policy while maintaining a given level of the real exchange rate is likely to be self-defeating. (iv) A high degree of currency substitution favors the exchange rate as the nominal anchor. Copyright 1994 Western Economic Association International.
Year of publication: |
1994
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Authors: | CALVO, GUILLERMO A. ; VÉGH, CARLOS A. |
Published in: |
Contemporary Economic Policy. - Western Economic Association International - WEAI, ISSN 1074-3529. - Vol. 12.1994, 2, p. 35-45
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Publisher: |
Western Economic Association International - WEAI |
Saved in:
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