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International finance --- Developing countries --- Foreign exchange --- -AA / International- internationaal --- LDC / Developping Countries - Pays En Développement --- 338.340 --- 333.454.0 --- 333.450 --- 333.451.0 --- Cambistry --- Currency exchange --- Exchange, Foreign --- Foreign currency --- Foreign exchange problem --- Foreign money --- Forex --- FX (Finance) --- International exchange --- Currency crises --- Algemene ontwikkeling in de Derde Wereld. --- Deviezencontrole: algemeenheden. --- Theorie van het deviezenverkeer. Theorie van de koopkrachtpariteit. --- Wisselmarkt: algemeenheden. --- AA / International- internationaal --- Theorie van het deviezenverkeer. Theorie van de koopkrachtpariteit --- Wisselmarkt: algemeenheden --- Deviezencontrole: algemeenheden --- Algemene ontwikkeling in de Derde Wereld --- Foreign exchange - Developing countries

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The paper examines the role of credibility in the conduct of exchange rate policy in developing countries, The analysis is based on a model in which policymakers are concerned about inflation and external competitiveness. Price setters in the nontraded goods sector of the economy adjust prices in reaction to anticipated fluctuations in the domestic price of tradable goods. This type of model is showm to generate a “devaluation bias” which undermines the credibility of a fixed exchange rate. The effect of reputational factors, signaling considerations, and joining a currency union as possible solutions to this bias is examined.

Foreign Exchange --- Inflation --- Development Planning and Policy: Trade Policy --- Factor Movement --- Foreign Exchange Policy --- Price Level --- Deflation --- Currency --- Foreign exchange --- Macroeconomics --- Exchange rates --- Conventional peg --- Real exchange rates --- Exchange rate policy --- Prices --- United Kingdom

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This paper models the Tequila effect (triggered by the collapse of the Mexican peso in December 1994) as a temporary increase in the risk premium faced by domestic private borrowers on world capital markets. The effects of this shock are studied in an intertemporal optimizing framework where firms’ demand for working capital is financed by bank credit. Under the assumption that the perceived duration of the shock is sufficiently long, the model is capable of reproducing some of the main features of Argentina’s economic downturn in the aftermath of the collapse of the Mexican peso: the rise in domestic interest rates, the reduction in net private capital inflows and the drop in official reserves, the reduction in bank deposits and credit supply, the fall in private consumption, the contraction in output, and the increase in unemployment.

Banks and Banking --- Exports and Imports --- Finance: General --- Investments: General --- Macroeconomics --- Money and Monetary Policy --- Financial Markets and the Macroeconomy --- Current Account Adjustment --- Short-term Capital Movements --- International Lending and Debt Problems --- Macroeconomics: Consumption --- Saving --- Wealth --- Investment --- Capital --- Intangible Capital --- Capacity --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- General Financial Markets: General (includes Measurement and Data) --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- International economics --- Banking --- Finance --- Monetary economics --- Consumption --- Return on investment --- External debt --- Bank deposits --- Capital markets --- National accounts --- Financial markets --- Credit --- Money --- Economics --- Saving and investment --- Debts, External --- Banks and banking --- Capital market --- Argentina

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This paper examines the long-run effects of macroeconomic policy shocks on the behavior of output, inflation, real wages and the real exchange rate in a small open economy. The analysis is based on a two-sector, three-good optimizing model with imperfect capital mobility, nominal wage contracts with backward- or forward-looking price expectations, and endogenous mark-up pricing in the nontraded goods sector. The effects of a cut in government spending on nontraded goods are shown to be independent of the expectational mechanism embedded in wage contracts. A reduction in the nominal devaluation rate lowers steady-state output in the tradable sector under backward-looking contracts, but exerts an expansionary effect under forward-looking contracts.

Exports and Imports --- Foreign Exchange --- Labor --- Macroeconomics --- Interest Rates: Determination, Term Structure, and Effects --- Fiscal Policy --- Open Economy Macroeconomics --- Wages, Compensation, and Labor Costs: General --- Macroeconomics: Consumption --- Saving --- Wealth --- Trade: General --- Labour --- income economics --- Currency --- Foreign exchange --- International economics --- Real exchange rates --- Wages --- Real wages --- Consumption --- Exports --- International trade --- National accounts --- Economics --- Japan

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This paper examines the behavior of real interest rates in exchange-rate based stabilization programs. The analysis is based on a model with imperfect capital mobility and optimizing agents. A permanent reduction in the devaluation rate is first shown to have an ambiguous effect on real interest rates on impact. The analysis is then extended to consider a stabilization program characterized by an initial reduction in the rate of devaluation of the nominal exchange rate, and the announcement of a future increase in income taxes. The impact effect on real interest rates is shown to depend upon the degree of credibility of the announcement. Real interest rates may fall if agents do not believe that taxes will be raised, and rise if the future tax reform is sufficiently credible.

Banks and Banking --- Foreign Exchange --- Investments: Bonds --- Macroeconomics --- Taxation --- Interest Rates: Determination, Term Structure, and Effects --- Current Account Adjustment --- Short-term Capital Movements --- Open Economy Macroeconomics --- Taxation, Subsidies, and Revenue: General --- General Financial Markets: General (includes Measurement and Data) --- Macroeconomics: Consumption --- Saving --- Wealth --- Finance --- Public finance & taxation --- Investment & securities --- Currency --- Foreign exchange --- Real interest rates --- Income tax systems --- Bonds --- Consumption --- Exchange rate adjustments --- Financial services --- Taxes --- Financial institutions --- National accounts --- Interest rates --- Income tax --- Economics --- Argentina