Exchange-Rate-Based Stabilization under Imperfect Credibility
Exchange-Rate-Based Stabilization under Imperfect Credibility

Author: Mr.Guillermo Calvo

Publisher: International Monetary Fund

Published: 1991-08-01

Total Pages: 34

ISBN-13: 1451849915

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This paper analyzes stabilization policy under predetermined exchange rates in a cash-in-advance, staggered-prices model. Under full credibility, a reduction in the rate of devaluation results in an immediate and permanent reduction in the inflation rate, with no effect on output or consumption. In contrast, a non-credible stabilization results in an initial expansion of output, followed by a later recession. The inflation rate of home goods remains above the rate of devaluation throughout the program, thus resulting in a sustained real exchange rate appreciation.

Exchange Rate Uncertainty in Money-Based Stabilization Programs
Exchange Rate Uncertainty in Money-Based Stabilization Programs

Author: Mr.R. Armando Morales

Publisher: International Monetary Fund

Published: 1998-01-01

Total Pages: 19

ISBN-13: 1451841876

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Complementing the explanation provided by Calvo and Vegh (1994) for money-based stabilization programs, exchange rate uncertainty introduced to a particular version of the portfolio approach with imperfect competition in the banking system leads to a bias toward appreciation that is directly related to the divergence of expectations and that dampens the interaction between portfolio movements and the real exchange rate. Based on Frankel-Froot, uncertainty exists when the fundamental equilibrium real exchange rate is temporarily unknown in a foreign exchange market with two types of agents: ‘parity-guessers,’ who expect a jump to a reference parity level, and ‘money-followers,’ who expect nominal depreciation equal to the monetary rule.

Why Inflation Targeting?
Why Inflation Targeting?

Author: Charles Freedman

Publisher: International Monetary Fund

Published: 2009-04-01

Total Pages: 27

ISBN-13: 145187233X

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This is the second chapter of a forthcoming monograph entitled "On Implementing Full-Fledged Inflation-Targeting Regimes: Saying What You Do and Doing What You Say." We begin by discussing the costs of inflation, including their role in generating boom-bust cycles. Following a general discussion of the need for a nominal anchor, we describe a specific type of monetary anchor, the inflation-targeting regime, and its two key intellectual roots-the absence of long-run trade-offs and the time-inconsistency problem. We conclude by providing a brief introduction to the way in which inflation targeting works.

The Mexican Peso Crisis
The Mexican Peso Crisis

Author: Mr.Paul R. Masson

Publisher: International Monetary Fund

Published: 1996-01-01

Total Pages: 36

ISBN-13: 1451929099

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This paper examines credibility and reputational factors in explaining the December 1994 crisis of the Mexican peso. After reviewing events leading to the crisis, a model emphasizing the inflation-competitiveness trade-off is presented to explain the formation of devaluation expectations. Estimation results indicate that investors appear to have seriously underestimated the risk of devaluation, despite early warning signals. The collapse of confidence that followed the December 20 devaluation may have been the result of a shift in the perceived commitment of the authorities to exchange rate stability.

Exchange Rate Based Stabilization in Argentina and Chile
Exchange Rate Based Stabilization in Argentina and Chile

Author: Miguel Alberto Kiguel

Publisher: World Bank Publications

Published: 1994

Total Pages: 38

ISBN-13: 7071614113

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Exchange- rate- based stabilization programs supported by a sustained fiscal adjustment generally reduced long- term inflation. Success was not easy, however, because rigid adherence to the exchange rate rule many times resulted in strong overvaluation of the currency and balance- of- payments problems before stabilization was finally secured.

Credibility and the Dynamics of Stabilization Policy
Credibility and the Dynamics of Stabilization Policy

Author: Mr.Guillermo Calvo

Publisher: International Monetary Fund

Published: 1990-11-01

Total Pages: 48

ISBN-13: 1451945582

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This paper studies price stabilization policy under both predetermined and flexible exchange rates. Under predetermined exchange rates, a non-credible stabilization program results in an initial expansion of output, followed by a later recession. The initial expansion accompanies an appreciating real exchange rate. Under flexible exchange rates, the recession occurs at the beginning of the program. The real exchange rate appreciates sharply on impact but depreciates afterwards. Lack of credibility is more costly under predetermined exchange rates because the real effects are more pronounced.

The Bank of Israel
The Bank of Israel

Author: Haim Barkai

Publisher: Oxford University Press

Published: 2007-01-18

Total Pages: 352

ISBN-13: 0190293748

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These two volumes were written on the occasion of the fiftieth anniversary of the founding of the Bank of Israel. They recount the monetary history of Israel from 1948, when the country was established (and before) to the present day. Volume I retells Israel's monetary history, analyzes the background of the developments mentioned above, and describes the difficulties in regaining monetary control in recent years. This volume also provides an analytical framework to help understand the monetary developments in the inflationary era and in the disinflation process.

Stopping High Inflation
Stopping High Inflation

Author: Mr.Carlos A. Végh Gramont

Publisher: International Monetary Fund

Published: 1991-11-01

Total Pages: 72

ISBN-13: 1451946724

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The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.

Research Activities of the IMF, January 1991-December 1999
Research Activities of the IMF, January 1991-December 1999

Author: International Monetary Fund

Publisher: International Monetary Fund

Published: 2000-01-01

Total Pages: 144

ISBN-13: 9781557759801

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Research activity in the IMF emphasizes the links between the organization's policy and operational concerns. The main objectives of research is IMF staff understanding of policy and operational issues relevant to the institution, and to improve the analytical quality of the work prepared for management and the Executive Board and the advice provided to member countries. The scope of research in the IMF is defined by the purposes and functions of the institution. In order to foster innovation and ensure quality control, the IMF makes much of its research available outside the institution and encourages staff to interact with academia and other research organizations through conferences, seminars, and occasional joint research projects. The visiting scholar’s program has also enhanced the quality of research done in the IMF. This program brings in leading members of the economics profession from around the world to assist in the preparation of papers for the Executive Board and to conduct research on IMF-related issues.