Credibility and the Dynamics of Stabilization Policy

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Credibility and the Dynamics of Stabilization Policy is written by Mr.Guillermo Calvo and published by International Monetary Fund. It's available with International Standard Book Number or ISBN identification 1451945582 (ISBN 10) and 9781451945584 (ISBN 13).

This paper studies price stabilization policy under both predetermined and flexible exchange rates. Under predetermined exchange rates, a non-credible stabilization program results in an initial expansion of output, followed by a later recession. The initial expansion accompanies an appreciating real exchange rate. Under flexible exchange rates, the recession occurs at the beginning of the program. The real exchange rate appreciates sharply on impact but depreciates afterwards. Lack of credibility is more costly under predetermined exchange rates because the real effects are more pronounced.