Why governments implement Temporary Stabilization Programs

Laura Alfaro ()

Journal of Applied Economics, 1999, vol. II, pages 211-245

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.

Keywords: temporary policies; exchange-rate-based stabilization programs; real exchange-rate appreciation (search for similar items in EconPapers)
JEL-codes: E6 F31 F41 (search for similar items in EconPapers)
Date: 1999
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Persistent link: http://EconPapers.repec.org/RePEc:cem:jaecon:v:2:y:1999:n:2:p:211-245

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