Macroeconomics in times of liquidity crises: searching for economic essentials
In: The Ohlin lectures
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In: The Ohlin lectures
In: NBER working paper series 13177
The paper examines the robustness of Interest Rate Rules, IRRs, in the context of an imperfectly credible stabilization program, closely following the format of much of the literature in open-economy models, e.g., Calvo and Végh (1993 and 1999). A basic result is that IRRs, like Exchange Rate Based Stabilization, ERBS, programs, could give rise to macroeconomic distortion, e.g., underutilization of capacity and real exchange rate misalignment. However, while under imperfect credibility EBRS is associated with overheating and current account deficits, IRRs give rise to somewhat opposite results. Moreover, the paper shows that popular policies to counteract misalignment, like Strategic Foreign Exchange Market Intervention or Controls on International Capital Mobility may not be effective or could even become counterproductive. The bottom line is that the greater exchange rate flexibility granted by IRRs is by far not a sure shot against the macroeconomic costs infringed by imperfect credibility.
In: NBER working paper series 12101
In: NBER working paper series 11492
In: NBER working paper series 11153
In: NBER working paper series 10520
In: NBER working paper series 9808
In: NBER working paper series 9828
In: NBER working paper series 9557
In: Working paper series 9864
In: IMF paper on policy analysis and assessment 93/10
In: NBER Working Paper No. w26277
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Working paper
In: NBER Working Paper No. w22535
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Working paper