Monetary and Exchange Rate Dynamics During Disinflation : An Empirical Analysis

Author/Editor:

Lei Zhang ; A. J Hamann ; Andres F Arias Leiva

Publication Date:

February 1, 2005

Electronic Access:

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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:

Based on the observed behavior of monetary aggregates and exchange rates, we classify inflation-stabilization episodes into two categories: de facto exchange rate-based stabilizations (ERBS) and non-ERBS. Unlike the standard de jure ERBS studied in the literature, de facto ERBS encompass cases in which the central bank intervenes in the foreign exchange market but does not preannounce the use of an exchange rate anchor. The number of the de facto ERBS is twice as large as that of de jure ERBS. Output dynamics during disinflation do not differ significantly between these two groups. We conclude that empirical studies on the effects of exchange rate anchors must seek to disentangle the effects of their announcement from those related to their role in the remonetization process.

Series:

Working Paper No. 05/33

Subject:

English

Publication Date:

February 1, 2005

ISBN/ISSN:

9781451860528/1018-5941

Stock No:

WPIEA2005033

Format:

Paper

Pages:

34

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