On Credible Disinflation

26 Pages Posted: 15 Feb 2006

See all articles by Jorge Roldós

Jorge Roldós

affiliation not provided to SSRN

Date Written: November 1993


We study the effects of a credible, gradual exchange rate based disinflation program in a two sector economy. After an initial real exchange rate depreciation, the reductions in the rate of devaluation reduce the monetary wedge generated by a cash in advance constraint, leading to a gradual increase in absorption that yields progressive real exchange rate appreciations and current account deficits. An initial boom in economic activity is not followed by a later contraction, as labor supply expands during the whole length of the program.

JEL Classification: F41

Suggested Citation

Roldós, Jorge, On Credible Disinflation (November 1993). IMF Working Paper No. 93/90, Available at SSRN: https://ssrn.com/abstract=883825

Jorge Roldós (Contact Author)

affiliation not provided to SSRN

No Address Available

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