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on Monetary Economics |
| By: | Aron, Janine; Muellbauer, John |
| Abstract: | This paper examines the evolution of monetary policy in South Africa in 1994-2004 in terms of design, the operational framework, the South African Reserve Bank’s (SARB) understanding of monetary policy transmission and the transparency, credibility and predictability of monetary policy. Quantitative indexes of transparency in 1994 and 2004 are compared and expectations data and forward interest rate data used to assess the credibility and predictability of policy under inflation targeting. The forecasting performance of the SARB is evaluated, and monetary policy decisions taken in response to external and domestic shocks assessed. The impact of monetary policy on the level of real interest rates and the role for complementary policies are examined. |
| Keywords: | inflation targeting; monetary policy; South Africa |
| JEL: | E52 E58 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5831&r=mon |
| By: | Buiter, Willem H |
| Abstract: | Flexible inflation targeting cannot be rationalised using conventional welfare economic criteria, except in a single, practically uninteresting special case. New-Keynesian DSGE models imply that optimal monetary policy implements the Bailey-Friedman Optimal Quantity of Money rule and that actual inflation fully validates or accommodates core inflation. Flexible inflation targeting is also inconsistent with the mandates of leading inflation targeters like the Bank of England and the ECB. These mandates are lexicographic in price stability and therefore does not permit a trade-off between inflation volatility and output gap volatility in the monetary policy maker's objective function. Operational independence of the central bank is limited by the central bank's intertemporal budget constraint. Price stability, or an externally imposed inflation target, may not be independently financeable by the central bank. In that case, active budgetary support from the Treasury is necessary to make the inflation target financeable. Independent monetary policy is fully compatible with coordinated and cooperative monetary and fiscal policy. Central bank operational independence precludes substantive accountability; it is compatible only with a weak form of formal accountability: reporting obligations. Central bank independence will only survive if it is viewed as legitimate by the polity and its citizens. A necessary condition for this is that the central bank restricts its activities and public discourse to its natural core mandate: price stability and the capacity and willingness to act as lender of last resort. The Protocol on the Statute of the ESCB and the ECB has given the ECB a mandate that goes beyond this natural core mandate. Such behaviour represents a threat to its continued independence. |
| Keywords: | accountability; central bank intertemporal budget constraint; flexible inflation targeting |
| JEL: | D6 E3 E4 E5 H0 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5772&r=mon |
| By: | Adam, Klaus; Billi, Roberto M |
| Abstract: | Does an inflation conservative central bank à la Rogoff (1985) remain desirable in a setting with endogenous fiscal policy? To provide an answer we study monetary and fiscal policy games without commitment in a dynamic stochastic sticky price economy with monopolistic distortions. Monetary policy determines nominal interest rates and fiscal policy provides public goods generating private utility. We find that lack of fiscal commitment gives rise to excessive public spending. The optimal inflation rate internalizing this distortion is positive, but lack of monetary commitment robustly generates too much inflation. A conservative monetary authority thus remains desirable. Exclusive focus on inflation by the central bank recoups large part - in some cases all - of the steady state welfare losses associated with lack of monetary and fiscal commitment. An inflation conservative central bank tends to improve also the conduct of stabilization policy. |
| Keywords: | conservative monetary policy; discretionary policy; sequential non-cooperative policy games; time consistent policy |
| JEL: | E52 E62 E63 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5740&r=mon |
| By: | Assenmacher-Wesche, Katrin; Gerlach, Stefan |
| Abstract: | Announced in the autumn of 1998, the monetary policy strategy of the European Central Bank (ECB) quickly became controversial, arguably because the ECB provided neither an explicit representation of the inflation process nor an explanation for why it necessitated the adoption of a two-pillar framework. Several reduced-form empirical models that seek to do so have subsequently been presented in the literature. The hallmark of these models is the hypothesis that inflation can be decomposed into a 'trend', which is explained by a smoothed measure of past money growth, and a deviation from that trend, which is accounted for by the output gap. In this paper we survey this literature, discuss how it relates to the monetary transmission mechanism and extend the inflation equations by introducing cost-push shocks. We find that changes in import prices, oil prices and exchange rates are statistically significant in euro-area inflation equations but that they leave intact the earlier findings that money growth and the output gap matter. |
| Keywords: | frequency domain; Philipps curve; quantity theory; spatial regression |
| JEL: | C22 E3 E5 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5683&r=mon |
| By: | Rose, Andrew K |
| Abstract: | A stable international monetary system has emerged since the early 1990s. A large number of industrial and a growing number of developing countries now have domestic inflation targets administered by independent and transparent central banks. These countries place few restrictions on capital mobility and allow their exchange rates to float. The domestic focus of monetary policy in these countries does not have any obvious international cost. Inflation targeters have lower exchange rate volatility and less frequent “sudden stops” of capital flows than similar countries that do not target inflation. Inflation targeting countries also do not have current accounts or international reserves that look different from other countries. This system was not planned and does not rely on international coordination. There is no role for a center country, the IMF, or gold. It is durable; in contrast to other monetary regimes, no country has yet abandoned an inflation-targeting regime in crisis. Succinctly, it is the diametric opposite of the post-war system; Bretton Woods, reversed. |
| Keywords: | capital; controls; durable; exchange; finance; fixed; inflation; rate; regime |
| JEL: | F02 F10 F34 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5854&r=mon |
| By: | Cees Ullersma; Gerben Hieminga |
| Abstract: | Although some authors have suggested that monetary expansion is still possible when the monetary policy interest rate cannot be reduced further, central banks tend to avoid interest rates close to the zero lower bound. Taking into account central banks.aversion to very low interest rates, we investigate optimal monetary policy in a New-Keynesian macro-economic model. Our analysis shows that appointing a central banker with a high aversion to low interest rate levels can mitigate the zero bound risk at the cost of persistent in.ation deviations from target. If fear of the zero lower bound is unfounded, it is better to appoint a central banker with no aversion to the zero lower bound, who will not shy away from unorthodox policies when the policy interest rate cannot be reduced further. |
| Keywords: | zero lower bound; inflation bias. |
| JEL: | E58 E52 E31 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:dnb:dnbwpp:117&r=mon |
| By: | Gürkaynak, Refet S.; Levin, Andrew; Swanson, Eric T |
| Abstract: | We investigate the extent to which inflation targeting helps anchor long-run inflation expectations by comparing the behaviour of daily bond yield data in the United Kingdom and Sweden—both inflation targeters—to that in the United States, a non-inflation-targeter. Using the difference between far-ahead forward rates on nominal and inflation-indexed bonds as a measure of compensation for expected inflation and inflation risk at long horizons, we examine how much, if at all, far-ahead forward inflation compensation moves in response to macroeconomic data releases and monetary policy announcements. In the U.S., we find that forward inflation compensation exhibits highly significant responses to economic news. In the U.K., we find a level of sensitivity similar to that in the U.S. prior to the Bank of England gaining independence in 1997, but a striking absence of such sensitivity since the central bank became independent. In Sweden, we find that inflation compensation has been insensitive to economic news over the whole period for which we have data. We show that these observations are also matched by the relative means and volatilities of the time series of far-ahead forward inflation compensation in these three countries. Our findings support the view that a well-known and credible inflation target helps anchor the private sector’s views regarding the distribution of long-run inflation outcomes. |
| Keywords: | inflation targeting |
| JEL: | E31 E52 E58 |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5808&r=mon |
| By: | Assenmacher-Wesche, Katrin; Gerlach, Stefan |
| Abstract: | While monetary targeting has become increasingly rare, many central banks attach weight to money growth in setting interest rates. This raises the issue of how money can be combined with other variables, in particular the output gap, when analysing inflation. The Swiss National Bank emphasises that the indicators it uses to do so vary across forecasting horizons. While real indicators are employed for short-run forecasts, money growth is more important at longer horizons. Using band spectral regressions and causality tests in the frequency domain, we show that this interpretation of the inflation process fits the data well. |
| Keywords: | frequency domain; Phillips curve; quantity theory; spectral regression |
| JEL: | C22 E3 E5 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5723&r=mon |
| By: | Orphanides, Athanasios; Williams, John C |
| Abstract: | A central tenet of inflation targeting is that establishing and maintaining well-anchored inflation expectations are essential. In this paper, we reexamine the role of key elements of the inflation targeting framework towards this end, in the context of an economy where economic agents have an imperfect understanding of the macroeconomic landscape within which the public forms expectations and policymakers must formulate and implement monetary policy. Using an estimated model of the U.S. economy, we show that monetary policy rules that would perform well under the assumption of rational expectations can perform very poorly when we introduce imperfect knowledge. We then examine the performance of an easily implemented policy rule that incorporates three key characteristics of inflation targeting: transparency, commitment to maintaining price stability, and close monitoring of inflation expectations, and find that all three play an important role in assuring its success. Our analysis suggests that simple difference rules in the spirit of Knut Wicksell excel at tethering inflation expectations to the central bank’s goal and in so doing achieve superior stabilization of inflation and economic activity in an environment of imperfect knowledge. |
| Keywords: | bond prices; learning; monetary policy rules; natural rate of interest; natural rate of unemployment; rational expectations; uncertainty |
| JEL: | D83 D84 E52 E58 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5664&r=mon |
| By: | Alexei Deviatov (New Economic School) |
| Abstract: | I study money creation in versions of the Trejos-Wright (1995) and Shi (1995) models with indivisible money and individual holdings bounded at two units. I work with the same class of policies as in Deviatov and Wallace (2001), who study money creation in that model. However, I consider an alternative notion of implementability–the ex ante pairwise core. I compute a set of numerical examples to determine whether money creation is beneficial. I find beneficial e?ects of money creation if individuals are su?ciently risk averse (obtain su?ciently high utility gains from trade) and impatient. |
| Keywords: | inflation; Friedman rule; optimal monetary policy |
| JEL: | E31 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:cfr:cefirw:w0081&r=mon |
| By: | Kirill Sosunov (Higher School of Economics); Oleg Zamulin (New Economic School) |
| Abstract: | The paper investigates the ability of monetary authorities to keep the real exchange rate undervalued over the long run by implementing a policy of accumulating foreign exchange reserves. We consider a model of a three-sector, small, open economy, where the central bank continuously purchases foreign currency reserves and compare the results to Russian and Chinese economies in recent years. Both countries appear to pursue reserve accumulation policies. We find a clear trade-o between the steady state levels of the real exchange rate and inflation. After calibration, the model predicts an 8.5% real undervaluation of the Russian currency and a 13.7% undervaluation of the Chinese currency. Predicted inflation is found to match observed levels. |
| Keywords: | Real exchange rate targeting, foreign exchange reserves, Dutch disease |
| JEL: | E52 F4 |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:cfr:cefirw:w0082&r=mon |
| By: | Adao, Bernardino; Correia, Maria Isabel Horta; Teles, Pedro |
| Abstract: | This paper assesses the relevance of the exchange rate regime for stabilization policy. This regime question cannot be dealt with independently of other institutions, in particular how fiscal policy is designed. We show that once fiscal policy is taken into account, the exchange rate regime is irrelevant. This is the case independently of the severity of price rigidities, independently of asymmetries across countries in shocks and transmission mechanisms and regardless of the incompleteness of international financial markets. The only relevant condition is labour mobility. The immobility of labour across countries is a necessary condition for our results. |
| Keywords: | fiscal and monetary policy; fixed exchange rates; labour mobility; monetary union; nominal rigidities; stabilization policy |
| JEL: | E31 E63 F20 F33 F41 F42 |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5797&r=mon |
| By: | Merkl, Christian; Snower, Dennis J. |
| Abstract: | This paper explores the influence of wage and price staggering on monetary persistence. We show that, for plausible parameter values, wage and price staggering are highly complementary in generating monetary persistence. We do so by proposing the new measure "quantitative persistence," after discussing weaknesses of the "contract multiplier," which is generally used to compare persistence. The existence of complementarities means that beyond understanding how wage and price staggering work in isolation, it is important to explore their interactions. Furthermore, our analysis indicates that the degree of monetary persistence generated by wage vis-à-vis price staggering depends on the relative competitiveness of the labour and product markets. We show that the conventional wisdom that wage staggering can generate more persistence than price staggering does not necessarily hold. |
| Keywords: | monetary persistence; monetary policy; price staggering; wage staggering |
| JEL: | E40 E50 E52 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5658&r=mon |
| By: | Gosselin, Pierre; Gosselin-Lotz, Aileen; Wyplosz, Charles |
| Abstract: | Morris and Shin (2002) have shown that a central bank may be too transparent if the private sector pays too much attention to its possible imprecise signals simply because they are common knowledge. In their model, the central bank faces a binary choice: to reveal or not to reveal its information. This paper extends their model to the more realistic case where the central bank must anyway convey some information by setting the interest rate. This situation radically changes the conclusions. In many cases, full transparency is socially optimal. In other instances the central bank can distill information to either manipulate private sector expectations in a way that reduces the common knowledge effect or to reduce the unavoidable information content of the interest rate. In no circumstance is the option of only setting the interest rate socially optimal. |
| Keywords: | central bank transparency |
| JEL: | E42 E52 E58 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5666&r=mon |
| By: | Christos Ioannidis and Alexandros Kontonikas |
| Abstract: | This paper investigates the impact of monetary policy on stock returns in thirteen OECD countries over the period 1972-2002. Our results indicate that monetary policy shifts significantly affect stock returns, thereby supporting the notion of monetary policy transmission via the stock market. Our contribution with respect to previous work is threefold. First, we show that our findings are robust to various alternative measures of stock returns. Second, our inferences are adjusted for the non-normality exhibited by the stock returns data. Finally, we take into account the increasing co-movement among international stock markets. The sensitivity analysis indicates that the results remain largely unchanged. |
| JEL: | E44 E52 E60 |
| URL: | http://d.repec.org/n?u=RePEc:gla:glaewp:2006_12&r=mon |
| By: | Papaioannou, Elias; Portes, Richard; Siourounis, Gregorios |
| Abstract: | Foreign exchange reserve accumulation has risen dramatically in recent years. The introduction of the euro, greater liquidity in other major currencies, and the rising current account deficits and external debt of the United States have increased the pressure on central banks to diversify away from the US dollar. A major portfolio shift would significantly affect exchange rates and the status of the dollar as the dominant international currency. We develop a dynamic mean-variance optimization framework with portfolio rebalancing costs to estimate optimal portfolio weights among the main international currencies. Making various assumptions on expected currency returns and the variance-covariance structure, we assess how the euro has changed this allocation. We then perform simulations for the optimal currency allocations of four large emerging market countries (Brazil, Russia, India and China), adding constraints that reflect a central bank’s desire to hold a sizable portion of its portfolio in the currencies of its peg, its foreign debt and its international trade. Our main results are: (i) The optimizer can match the large share of the US dollar in reserves, when the dollar is the reference (risk-free) currency. (ii) The optimum portfolios show a much lower weight for the euro than is observed. This suggests that the euro may already enjoy an enhanced role as an international reserve currency ('punching above its weight'). (iii) Growth in issuance of euro-denominated securities, a rise in euro zone trade with key emerging markets, and increased use of the euro as a currency peg, would all work towards raising the optimal euro shares, with the last factor being quantitatively the most important. |
| Keywords: | currency optimizer; euro; foreign reserves; international currencies |
| JEL: | F02 F30 G11 G15 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5734&r=mon |
| By: | Olivei, Giovanni; Tenreyro, Silvana |
| Abstract: | A vast empirical literature has documented delayed and persistent effects of monetary policy shocks on output. We show that this finding results from the aggregation of output impulse responses that differ sharply depending on the timing of the shock: When the monetary policy shock takes place in the first two quarters of the year, the response of output is quick, sizable, and dies out at a relatively fast pace. In contrast, output responds very little when the shock takes place in the third or fourth quarter. We propose a potential explanation for the differential responses based on uneven staggering of wage contracts across quarters. Using a stylized dynamic general equilibrium model, we show that a very modest amount of uneven staggering can generate differences in output responses similar to those found in the data. |
| Keywords: | business cycles; impulse-response function; monetary policy; nominal rigidity |
| JEL: | E1 E31 E32 E52 E58 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5716&r=mon |
| By: | Artis, Michael J |
| Abstract: | The paper presents the text of a lecture given at the Bank of England in December 2005 as the first in a series of lectures in memory of John Flemming. It provides a personal view of what the profession has learnt about currency unions as a result of the establishment and operation of the European Monetary Union. It argues that the salience of business cycle concurrence as a criterion for participation is probably less than used to be understood and for some countries borders on irrelevance. In any case the effects of union upon business cycle concurrence are themselves not obvious. It also appears that, after a period in which very large estimates of the trade effect of currency unions were widespread, more modest estimates are in order. The most unlooked-for effect is probably that which has occurred in the financial markets; country premia within the EMU are very small, offering a means for insurance against asymmetric shocks. Finally, the lessons of another, local, experiment in currency union is examined. But the useful lessons from this experiment (Ecco L’Euro) are found to be limited. |
| Keywords: | currency union; EMU; optimal currency area theory |
| JEL: | E0 E4 F1 |
| Date: | 2006–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5677&r=mon |
| By: | Obstfeld, Maurice |
| Abstract: | In the face of huge balance of payments surpluses and internal inflationary pressures, China has been in a classic conflict between internal and external balance under its dollar currency peg. Over the longer term, China’s large, modernizing, and diverse economy will need exchange rate flexibility and, eventually, convertibility with open capital markets. A feasible and attractive exit strategy from the essentially fixed RMB exchange rate would be a two-stage approach, consistent with the steps already taken since July 2005, but going beyond them. First, establish a limited trading band for the RMB relative to a basket of major trading partner currencies. Set the band so that it allows some initial revaluation of the RMB against the dollar, manage the basket rate within the band if necessary, and widen the band over time as domestic foreign exchange markets develop. Second, put on hold ad hoc measures of financial account liberalization. They will be less helpful for relieving exchange rate pressures once the RMB/basket rate is allowed to move flexibly within a band, and they are best postponed until domestic foreign exchange markets develop further, the exchange rate is fully flexible, and the domestic financial system has been strengthened and placed on a market-oriented basis. |
| Keywords: | China balance of payments; China currency; fixed exchange rate exit strategy; renminbi |
| JEL: | F32 |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5771&r=mon |
| By: | Rocío Betancourt; Hernando Vargas; Norberto Rodríguez Niño |
| Abstract: | Banks and other credit institutions are key players in the transmission of monetary policy, especially in emerging market economies, where the responses of deposit and loan interest rates to shifts in policy rates are among the most important channels. This pass-through depends on the conditions prevailing in the loan and deposit markets, which are, in turn, affected by macroeconomic factors. Hence, when setting their policy, monetary authorities must take into account those conditions and the behavior of banks. This paper illustrates this point by means of a theoretical micro-banking model and shows empirical evidence for Colombia suggesting that some aspects of the model might be relevant features of the transmission mechanism. |
| Date: | 2006–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:col:001043:002676&r=mon |
| By: | Bindseil, Ulrich (European Central Bank); Nyborg, Kjell G. (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration); Strebulaev, Ilya A. (Graduate School of Business, Stanford University) |
| Abstract: | Repo auctions are used to inject central bank funds against collateral into the banking sector. The ECB uses standard discriminatory auctions and hundreds of banks participate. The amount auctioned over the monthly reserve maintenance period is in principle exactly what banks collectively need to fulfill reserve requirements. We study bidder-level data and find: (i) Bidder behavior is different from what is documented for treasury auctions. Private information and the winner’s curse seem to be relatively unimportant. (ii) Underpricing is positively related to the difference between the interbank rate and the auction minimum bid rate, with the latter appearing to be a binding constraint. (iii) Bidders are more aggressive when the imbalance of awards in the previous auction is larger. (iv) Large bidders do better than small bidders. Some of our findings suggests that bidders are concerned with the loser’s nightmare and have limited amounts of the cheapest eligible collateral. |
| Keywords: | Repo auctions; multiunit auctions; reserve requirements; loser’s nightmare; money markets; central bank; collateral; open market operations |
| JEL: | D44 E43 E50 G12 G21 |
| Date: | 2005–12–22 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhhfms:2005_013&r=mon |
| By: | Devereux, Michael B; Engel, Charles M |
| Abstract: | Both empirical evidence and theoretical discussion have long emphasized the impact of `news' on exchange rates. In most exchange rate models, the exchange rate acts as an asset price, and as such responds to news about future returns on assets. But the exchange rate also plays a role in determining the relative price of non-durable goods when nominal goods prices are sticky. In this paper we argue that these two roles may conflict with one another. If news about future asset returns causes movements in current exchange rates, then when nominal prices are slow to adjust, this may cause changes in current relative goods prices that have no efficiency rationale. In this sense, anticipations of future shocks to fundamentals can cause current exchange rate misalignments. Friedman's (1953) case for unfettered flexible exchange rates is overturned when exchange rates are asset prices. We outline a series of models in which an optimal policy eliminates the effects of news on exchange rates. |
| Keywords: | exchange rate; expectations; monetary policy |
| JEL: | F3 F31 F33 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5743&r=mon |
| By: | Alexei Deviatov (New Economic School); Igor Dodonov (New Economic School) |
| Abstract: | Empirical analysis of exchange rates has produced puzzles that conventional models of exchange rates cannot explain. Here we deal with four puzzles regarding both real and nominal exchange rates, which are robust and inconsistent with standard theory. These puzzles are that both real and nominal exchange rates: i) are disconnected from fundamentals, ii) are much more volatile than fundamentals, iii) show little di?erence in behavior, and iv) fail to satisfy conservation of volatility. We develop a two-country, two-currency version of the random matching model to study exchange rates. We show that search and legal restrictions can produce exchange-rate dynamics consistent with these four puzzles. |
| Keywords: | exchange-rate puzzles, exchange-rate volatility, bargaining, search |
| JEL: | F31 C78 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:cfr:cefirw:w0079&r=mon |
| By: | Vitale, Paolo |
| Abstract: | We offer a critical review of recent developments in the study of foreign exchange intervention. In particular, we discuss some unresolved issues, such as the secrecy puzzle, the relevance of the signalling and portfolio-balance effect hypotheses, the identification of the impact of foreign exchange intervention on currency values. We suggest that: i) the unresolved nature of these issues is partly due to the absence of a market microstructure perspective in most of the existing analysis of foreign exchange intervention; and ii) that recent promising advances in this strand of research have not fully exploited the potential of such perspective. |
| Keywords: | exchange rate dynamics; foreign exchange micro structure; official intervention |
| JEL: | D82 G14 G15 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:5729&r=mon |
| By: | Marc Hofstetter |
| Abstract: | This paper challenges the conventional view according to which disinflations in Latin America —even from low and moderate peaks— have been carried out at no cost to output. After suggesting a new methodology that overcomes some of the shortcomings of the traditional methods used to measure the costs of disinflations, large sacrifice ratios are obtained for the 1970s and 80s. While the disinflation costs for the 90s remain negative, it is shown that an unusual combination of circumstances —i.e., factors related to capital inflows, structural reforms, and the peculiar recent inflation history— can explain this fortunate result. |
| Date: | 2006–01–10 |
| URL: | http://d.repec.org/n?u=RePEc:col:001049:002679&r=mon |