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| Other authors / contributors: | International Monetary Fund. Research Department.
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| ISBN: | 1451902174
9781451902174
1282106953
9781282106956
1462389236
9781462389230
1452759286
9781452759289
9786613800305
6613800309
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| Notes: | Includes bibliographical references (pages 31-33).
Restrictions unspecified
Electronic reproduction. [Place of publication not identified] : HathiTrust Digital Library, 2010.
Master and use copy. Digital master created according to Benchmark for Faithful Digital Reproductions of Monographs and Serials, Version 1. Digital Library Federation, December 2002. http://purl.oclc.org/DLF/benchrepro0212
English.
digitized 2010 HathiTrust Digital Library committed to preserve
Print version record.
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| Summary: | Exchange rate-based inflation stabilization (ERBS) policies are associated with a boom-recession cycle in economic activity and sustained real exchange rate appreciation. A class of models in the literature has explained these empirical regularities with the lack of credibility of the stabilization plans. The lack-of-credibility models typically assume perfectly forward-looking pricing behavior without inflation stickiness and attribute the slow decline in inflation to the consumption boom that occurs due to the perceived temporariness of the ERBS policy. This paper tests the empirical validity of forward-looking pricing behavior in Mexico and Turkey, two countries which have experienced ERBS. It finds that the forward- and backward-looking components of inflation weigh approximately equally in pricing behavior, and therefore, that inflation is partially sticky. The paper then develops the theoretical implications of partial inflation stickiness in a lack of credibility model of ERBS and concludes that the presence of stickiness significantly reduces the persistence of the consumption boom predicted by the model, but helps to explain the recession in the late phase of the stabilization.
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| Other form: | Print version: Celasun, Oya. Sticky inflation and the real effects of exchange rate-based stabilization. Washington, D.C. : International Monetary Fund, ©2003
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| Standard no.: | 10.5089/9781451902174.001
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