Credit and Exchange Rate-Based Stabilization

Author/Editor:

May Y Khamis

Publication Date:

May 1, 1996

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper examines the behavior of private sector credit in chronic inflation countries that undergo exchange rate-based inflation stabilizations. It concludes that these programs are characterized by a strong increase in private sector credit, both in absolute terms and as a fraction of real economic activity. Empirical results using data for Mexico, Chile, Argentina, and Israel support a negative statistically significant relationship between credit and inflation for Mexico, Argentina, and Chile, but not for Israel. In addition, for both Chile and Mexico, dummy variables representing periods of inflation stabilization are positive and statistically different from zero indicating a stronger expansion in private sector credit during stabilization. These results could potentially explain the consumption boom that is usually present in the early stages of these programs.

Series:

Working Paper No. 96/51

Subject:

English

Publication Date:

May 1, 1996

ISBN/ISSN:

9781451847062/1018-5941

Stock No:

WPIEA0511996

Price:

$15.00 (Academic Rate:$15.00)

Format:

Paper

Pages:

54

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