Stabilizations, crises and the "exit" problem - A theoretical model

Michael Bleaney, Marco Gundermann

Research output: Contribution to Book/Report typesChapter

Abstract

Exchange-rate-based stabilizations, even if successful, usually lack credibility initially. This is reflected in high (ex post) real interest rates and some degree of real exchange rate appreciation. Empirical observation suggests that wage inflation declines smoothly over time whilst interest rates are volatile. Our model captures these features and provides insights into: the eruption of exchange rate crises after a long period of apparently successful stabilization; the potential advantages of a heterodox approach; when to delay a stabilization attempt; and the optimal date for "exit" to a floating exchange rate. © 2007 Elsevier Inc. All rights reserved.
Original languageEnglish
Title of host publicationJournal of Macroeconomics
Pages876-890
Number of pages15
DOIs
Publication statusPublished - Dec 2007

Publication series

NameJournal of Macroeconomics
Volume29

Fingerprint

Stabilization
Exit
Inflation
Exchange rate crises
Exchange rate-based stabilization
Real exchange rate
Floating exchange rates
Interest rates
Wages
Credibility
Long period

Keywords

  • Credibility
  • Currency crisis
  • Exchange rate
  • Inflation

Cite this

Bleaney, M., & Gundermann, M. (2007). Stabilizations, crises and the "exit" problem - A theoretical model. In Journal of Macroeconomics (pp. 876-890). (Journal of Macroeconomics; Vol. 29). https://doi.org/10.1016/j.jmacro.2005.10.021
Bleaney, Michael ; Gundermann, Marco. / Stabilizations, crises and the "exit" problem - A theoretical model. Journal of Macroeconomics. 2007. pp. 876-890 (Journal of Macroeconomics).
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Bleaney, M & Gundermann, M 2007, Stabilizations, crises and the "exit" problem - A theoretical model. in Journal of Macroeconomics. Journal of Macroeconomics, vol. 29, pp. 876-890. https://doi.org/10.1016/j.jmacro.2005.10.021

Stabilizations, crises and the "exit" problem - A theoretical model. / Bleaney, Michael; Gundermann, Marco.

Journal of Macroeconomics. 2007. p. 876-890 (Journal of Macroeconomics; Vol. 29).

Research output: Contribution to Book/Report typesChapter

TY - CHAP

T1 - Stabilizations, crises and the "exit" problem - A theoretical model

AU - Bleaney, Michael

AU - Gundermann, Marco

PY - 2007/12

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N2 - Exchange-rate-based stabilizations, even if successful, usually lack credibility initially. This is reflected in high (ex post) real interest rates and some degree of real exchange rate appreciation. Empirical observation suggests that wage inflation declines smoothly over time whilst interest rates are volatile. Our model captures these features and provides insights into: the eruption of exchange rate crises after a long period of apparently successful stabilization; the potential advantages of a heterodox approach; when to delay a stabilization attempt; and the optimal date for "exit" to a floating exchange rate. © 2007 Elsevier Inc. All rights reserved.

AB - Exchange-rate-based stabilizations, even if successful, usually lack credibility initially. This is reflected in high (ex post) real interest rates and some degree of real exchange rate appreciation. Empirical observation suggests that wage inflation declines smoothly over time whilst interest rates are volatile. Our model captures these features and provides insights into: the eruption of exchange rate crises after a long period of apparently successful stabilization; the potential advantages of a heterodox approach; when to delay a stabilization attempt; and the optimal date for "exit" to a floating exchange rate. © 2007 Elsevier Inc. All rights reserved.

KW - Credibility

KW - Currency crisis

KW - Exchange rate

KW - Inflation

UR - http://www.mendeley.com/research/stabilizations-crises-exit-problem-theoretical-model

U2 - 10.1016/j.jmacro.2005.10.021

DO - 10.1016/j.jmacro.2005.10.021

M3 - Chapter

SN - 0920-9964

T3 - Journal of Macroeconomics

SP - 876

EP - 890

BT - Journal of Macroeconomics

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Bleaney M, Gundermann M. Stabilizations, crises and the "exit" problem - A theoretical model. In Journal of Macroeconomics. 2007. p. 876-890. (Journal of Macroeconomics). https://doi.org/10.1016/j.jmacro.2005.10.021