On Credible Disinflation
Summary:
We study the effects of a credible, gradual exchange rate based disinflation program in a two sector economy. After an initial real exchange rate depreciation, the reductions in the rate of devaluation reduce the monetary wedge generated by a cash in advance constraint, leading to a gradual increase in absorption that yields progressive real exchange rate appreciations and current account deficits. An initial boom in economic activity is not followed by a later contraction, as labor supply expands during the whole length of the program.
Series:
Working Paper No. 1993/090
Subject:
Consumption Disinflation Foreign exchange Inflation Labor Labor supply National accounts Prices Real exchange rates
English
Publication Date:
November 1, 1993
ISBN/ISSN:
9781451851342/1018-5941
Stock No:
WPIEA0901993
Pages:
26
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