DP1220 Real Effects of Exchange-Rate-Based Stabilization: An Analysis of Competing Theories

Author(s): Sérgio Rebelo
Publication Date: August 1995
Keyword(s): Fixed Exchange Rates, Inflation, Stabilization
JEL(s): F41
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1220

This paper uses a unified analytical framework to assess, both qualitatively and quantitatively, the relevance of the different hypotheses that have been proposed to explain the real effects of exchange-rate-based stabilizations. The four major hypotheses analysed are: (i) the supply-side effects associated with an inflation decline; (ii) the perception that the exchange rate peg is temporary; (iii) the fiscal adjustments that tend to accompany the peg; and (iv) the existence of nominal rigidities in wages or prices.