Reinhart, Carmen and Vegh, Carlos (1995): Nominal interest rates, consumption booms, and lack of credibility: A quantitative examination. Published in: Journal of Development Econommics , Vol. 46, No. 2 (April 1995): pp. 357-378.
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Exchange rate-based stabilization programs in chronic-inflation countries have often been accompanied by an initial expansion of private consumption followed by a contraction. This consumption cycle has been attributed to lack of credibility, in the sense that the public views the reduction in the devaluation rate as temporary. This paper assesses the quantitative relevance of the 'temporariness' hypothesis by comparing the predictions of a simple model to the actual figures for seven major programs. The paper concludes that nominal interest rates must fall substantially for the 'temporariness' hypothesis to account for an important fraction of the observed consumption booms.
|Item Type:||MPRA Paper|
|Original Title:||Nominal interest rates, consumption booms, and lack of credibility: A quantitative examination|
|Keywords:||inflation stabilization credibility consumption booms interest rates current account deficits|
|Subjects:||F - International Economics > F3 - International Finance > F30 - General
F - International Economics > F3 - International Finance > F32 - Current Account Adjustment; Short-Term Capital Movements
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level; Inflation; Deflation
E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E21 - Consumption; Saving; Wealth
|Depositing User:||Carmen Reinhart|
|Date Deposited:||15. Mar 2009 03:10|
|Last Modified:||11. Feb 2013 18:31|
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