Stabilization with Exchange Rate Management

Allan Drazen and Elhanan Helpman

No 275420, Foerder Institute for Economic Research Working Papers from Tel-Aviv University > Foerder Institute for Economic Research

Abstract: Stabilization programs in open economies typically consist of two stages. In the first stage the rate of currency devaluation is reduced without a sufficient fiscal adjustment to eliminate the deficit that causes continued growth of debt and loss of reserves. Only later, at a second stage, is this followed by either an abandonment of exchange rate management or by a sufficiently large cut in the fiscal deficit. We study how different second-stage policy changes affect economic dynamics during the first stage, both when the timing of a change is known, and when it is uncertain. These changes include tax increases, budget cuts on traded and nontraded goods, and increases in the growth rate of money.

Keywords: Demand and Price Analysis; Financial Economics (search for similar items in EconPapers)
Pages: 81
Date: 1986-11
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Citations: View citations in EconPapers (5)

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Journal Article: Stabilization with Exchange Rate Management (1987)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:isfiwp:275420

DOI: 10.22004/ag.econ.275420

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