Supply-Side Effects of Disinflation Programs
Jorge E. Roldós
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Jorge E. Roldós: International Monetary Fund
IMF Staff Papers, 1995, vol. 42, issue 1, 158-183
Abstract:
This paper focuses on the short- and long-run supply-side effects of disinflation programs in a two-sector economy. Fixing the exchange rate reduces the wedge between the return on foreign assets and that on domestic capital, leading to an increase in the latter. After an initial real exchange rate appreciation and increase in the production of nontradables--resulting from a consumption boom--the new capital is gradually installed in the tradable sector. During this transitional period, further real appreciation takes place--as the expansion of the tradable sector pulls labor away from the nontradable sector--together with investment-driven deficits in the current account. We conclude that when appreciation and deficits are due to supply-side rigidities, rather than to credibility and/or price stickiness, no further policies (e.g., capital controls, incomes policies) are advisable.
JEL-codes: F41 (search for similar items in EconPapers)
Date: 1995
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Citations: View citations in EconPapers (35)
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Persistent link: https://EconPapers.repec.org/RePEc:pal:imfstp:v:42:y:1995:i:1:p:158-183
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