Why Governments Implement Temporary Stabilization Programs
Journal of Applied Economics, Vol. 2, pp. 211-245, November 1999
Posted: 24 May 2004
Abstract
This paper provides a political economy explanation for temporary exchange-rate-based stabilization programs (where the exchange rate is used as a nominal anchor) and their optimal duration by focusing on the distributive effects of real exchange rate appreciation. In a small-open-economy model, a temporary reduction in the devaluation rate leads to a reduction in the nominal interest rate and to a temporary appreciation of the real exchange rate. Owners of tradable-goods are hurt, while for reasonable parameter values, the owners of non-traded goods' welfare improves.
Suggested Citation: Suggested Citation
Alfaro, Laura, Why Governments Implement Temporary Stabilization Programs. Journal of Applied Economics, Vol. 2, pp. 211-245, November 1999, Available at SSRN: https://ssrn.com/abstract=549401
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