This paper compares the welfare costs and initial dynamics of three alternative inflation stabilization policies using … and real exchange rate from appreciating on impact (MBR). Simulation results suggest that the welfare costs associated … temporary programs and for economies with low degree of currency substitution. ERB and MBR programs produce similar welfare …

utility calculations. There is a stabilization problem because there are one-period nominal contracts for wages, or prices, or … shocks, nominal income stabilization yields higher welfare when there are no price contracts. However, with price contracts …

-optimal equilibrium that would occur under completely flexible wages and prices; that is, the model exhibits a tradeoff between … stabilizing the output gap, price inflation, and wage inflation. The Pareto optimum is attainable only if either wages or prices …