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 o...

Full description

Saved in:
Bibliographic Details
Published in:Contemporary economic policy 1994-04, Vol.12 (2), p.35-45
Main Authors: CALVO, GUILLERMO A., VÉGH, CARLOS A.
Format: Article
Language:English
Subjects:
Consumption
Costs
Credibility
Currency
Currency revaluation
Developing countries
Disinflation
Economic activity
Economic aspects
Economic conditions
Economic stabilization
Economic theory
Foreign exchange
Foreign exchange controls
Foreign exchange rates
GDP
Gross Domestic Product
Inflation
Inflation (Economics)
Inflation (Finance)
Inflation rates
Interest rates
LDCs
Opportunity costs
Price levels
Recessions
Studies
Supply & demand
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary: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.
ISSN:1074-3529
1465-7287
DOI:10.1111/j.1465-7287.1994.tb00421.x