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Journal Article

Temporary Stabilization: Predetermined Exchange Rates

Guillermo A. Calvo
Journal of Political Economy
Vol. 94, No. 6 (Dec., 1986), pp. 1319-1329
Stable URL: http://www.jstor.org/stable/1833101
Page Count: 11
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Temporary Stabilization: Predetermined Exchange Rates
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Abstract

The paper analyzes the impact of a stabilization policy based on a temporary reduction in the rate of devaluation. Against a background in which a constant rate of devaluation has no real effects, it is shown that the temporary policy does and, furthermore, that the real effects tend to become bigger (in absolute value) as the horizon of the temporary policy is shortened. The central discussion is carried out in terms of a one-good, cash-in-advance model, with perfect capital mobility and Ramsey-type consumers. Results are extended to account for home goods and variable velocity; the roles of capital mobility and banking liberalization are briefly discussed.

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