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Book Cover
Author Celasun, Oya, author

Title Sticky inflation and the real effects of exchange rate-based stabilization / Oya Celasun
Published Washington, D.C. : International Monetary Fund, [2003]
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Description 1 online resource (33 pages) : illustrations
Series IMF working paper ; WP/03/151
IMF working paper ; WP/03/151
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
Bibliography Includes bibliographical references (pages 31-33)
Notes 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. MiAaHDL
digitized 2010 HathiTrust Digital Library committed to preserve pda MiAaHDL
Print version record
Subject Deflation (Finance) -- Mexico -- Econometric models.
Deflation (Finance) -- Turkey -- Econometric models.
Inflation (Finance) -- Mexico -- Effect of foreign exchange rates on -- Econometric models
Inflation (Finance) -- Turkey -- Effect of foreign exchange rates on -- Econometric models
Prices -- Mexico -- Econometric models.
Prices -- Turkey -- Econometric models.
Form Electronic book
Author International Monetary Fund. Research Department.
ISBN 1451902174