Credit Constrained Consumers, Inflation Inertia and Instability Under Fixed Exchange Rates

19 Pages Posted: 9 Nov 2006

See all articles by Tatiana Kirsanova

Tatiana Kirsanova

University of Glasgow

David Vines

University of Oxford - Balliol College - Department of Economics; Australian National University (ANU); Centre for Economic Policy Research (CEPR)

Simon Wren-Lewis

University of Oxford - Economics Department

Date Written: October 9, 2006

Abstract

This paper investigates stability in a small open economy under fixed exchange rates when a proportion of consumers are credit constrained, and there exists some degree of inflation inertia. We show that the combination of these two elements may generate significant cyclical behaviour, and that these cycles may become explosive under certain parameterisations. The influence of changes in competitiveness on demand helps generate cyclicality, but in itself does not prevent the possibility of global instability.

Keywords: Macroeconomic stability, Fixed exhange rate

JEL Classification: E52, E61, E63, F41

Suggested Citation

Kirsanova, Tatiana and Vines, David and Wren-Lewis, Simon J.Q., Credit Constrained Consumers, Inflation Inertia and Instability Under Fixed Exchange Rates (October 9, 2006). Available at SSRN: https://ssrn.com/abstract=943034 or http://dx.doi.org/10.2139/ssrn.943034

Tatiana Kirsanova (Contact Author)

University of Glasgow ( email )

Adam Smith Business School
Glasgow, Scotland G12 8LE
United Kingdom

David Vines

University of Oxford - Balliol College - Department of Economics ( email )

Manor Road
Oxford, OX1 3BJ, Oxfordshire OX13UQ
United Kingdom
+44 1865 271 067 (Phone)
+44 1865 271 094 (Fax)

Australian National University (ANU)

Canberra, Australian Capital Territory
Australia

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Simon J.Q. Wren-Lewis

University of Oxford - Economics Department ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
49
Abstract Views
496
PlumX Metrics