Inflation Stabilization and the Consumption of Durable Goods

Posted: 30 Aug 1998

See all articles by Jose de Gregorio

Jose de Gregorio

Central Bank of Chile; Universidad de Chile; National Bureau of Economic Research (NBER)

Pablo E. Guidotti

Ministry Of Economy, Public Works and Services, Argentina

Carlos A. Vegh

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS); University of Maryland - Department of Economics; University of California at Los Angeles; National Bureau of Economic Research (NBER)

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Abstract

Exchange rate-based stabilizations in chronic-inflation countries have often been characterized by an initial consumption boom (which is most evident in the behavior of durable goods) followed by a later contraction. This paper provides an explanation for such a boom-recession cycle based on the timing of purchases of durable goods. The initial fall in inflation results in a wealth effect which induces many consumers to bring forward their purchases of durable goods, thus generating an aggregate consumption boom. Since most consumers replenish their stock of durable goods at the beginning of the program, a later slowdown follows.

JEL Classification: F41

Suggested Citation

de Gregorio, Jose and Guidotti, Pablo E. and Vegh, Carlos A., Inflation Stabilization and the Consumption of Durable Goods. Available at SSRN: https://ssrn.com/abstract=100348

Jose De Gregorio

Central Bank of Chile ( email )

Agustinas 1180
Santiago
Chile

Universidad de Chile ( email )

Ministry of Finance Teatinos l20 - Piso l2
Santiago
Chile

National Bureau of Economic Research (NBER)

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Pablo E. Guidotti

Ministry Of Economy, Public Works and Services, Argentina ( email )

Hipolito Yrigoyen 250-5th Floor-Room 506
Buenos Aires, 1310
Argentina

Carlos A. Vegh (Contact Author)

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS) ( email )

1740 Massachusetts Avenue, NW
Washington, DC 20036-1984
United States

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

University of California at Los Angeles ( email )

Box 951477
Los Angeles, CA 90095-1477
United States
310-825-7371 (Phone)
310-825-9528 (Fax)

HOME PAGE: http://vegh.sscnet.ucla.edu

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

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