Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)
Are Exchange Rate-Based Stabilizations Expansionary: Theoretical Considerations and the Brazilian Case
Abstract: High inflation economies, especially the Latin American
cases like Argentina and Brazil, have ultimately been successful in
stabilising their prices using the exchange rate as a nominal anchor.
Contrary to conventional wisdom inflation in these cases has not been
reduced at the cost of temporary recessions, instead, they have shown
positive output effects. Various theoretical explanations of such
boom-cycles are discussed and a model generating such an outcome is
developed. Some empirical evidence is given by the Brazilian "Real Plan" of
1994. Nevertheless, the medium and long-term effects of such programmes can
result in recessions and a resumption of high inflation, although the cases
show that such "postponed stabilisation costs" can be overcome by adequate
and flexible supply-side policies accompanying the stabilisation
Keywords: Macroeconomic modelling; exchange rate-based stabilisation; high inflation; Brazil, Latin America; (follow links to similar papers)
JEL-Codes: E10; E31; E52; E63; (follow links to similar papers)
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