Exchange‐Rate‐Based Stabilisation, Durables Consumption and the Stylised Facts

31 Pages Posted: 21 Sep 2011

See all articles by Edward F. Buffie

Edward F. Buffie

affiliation not provided to SSRN

Manoj Atolia

Florida State University - Department of Economics

Date Written: September 2011

Abstract

In this article we show that a model featuring durable consumer goods, imperfect substitution between domestic and foreign assets, and weak credibility can explain the qualitative and quantitative aspects of the stylised facts associated with exchange‐rate‐based stabilisation, including the tremendous increase in real interest rates. Following a temporary reduction in the crawl, total consumption spending rises 14–26%, the real exchange rate appreciates 20–37% and the current account deficit swells to 10–15% of gross domestic product. Despite large capital inflows, the real interest rate increases from 10 to 20–100%.

Suggested Citation

Buffie, Edward F. and Atolia, Manoj, Exchange‐Rate‐Based Stabilisation, Durables Consumption and the Stylised Facts (September 2011). The Economic Journal, Vol. 121, Issue 555, pp. 1130-1160, 2011. Available at SSRN: https://ssrn.com/abstract=1931355 or http://dx.doi.org/10.1111/j.1468-0297.2011.02431.x

Edward F. Buffie (Contact Author)

affiliation not provided to SSRN

No Address Available

Manoj Atolia

Florida State University - Department of Economics ( email )

Tallahassee, FL 30306-2180
United States
+1.850.644.7088 (Phone)
+1.850.644.4535 (Fax)

HOME PAGE: http://mailer.fsu.edu/~matolia/

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