Exchange-rate-based stabilisations, even if successful, usually lack credibility initially. This is reflected in high (ex post) real interest rates and some degree of real exchange rate appreciation. Empirical observation suggests that wage inflation declines smoothly over time whilst interest...

We provide a case for maintaining welfare and income redistribution programs even when their adverse general equilibrium effects reduce total earnings of poor households. Using a Cournot model of intra-household decision-making, we show that even if welfare cutbacks generate large increases in...