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Temporary Stabilization: Predetermined Exchange Rates
Guillermo A. Calvo
Journal of Political Economy
Vol. 94, No. 6 (Dec., 1986), pp. 1319-1329
Published by: The University of Chicago Press
Stable URL: http://www.jstor.org/stable/1833101
Page Count: 11
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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.
Journal of Political Economy © 1986 The University of Chicago Press