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| Author: | Roldas, J. E. |
| Title: | On gradual disinflation, the real exchange rate, and the current account |
| Journal: | Journal of International Money and Finance
1997 : FEB, VOL. 16:1, p. 37-54 |
| Index terms: | EXCHANGE RATES CURRENT ACCOUNT |
| Language: | eng |
| Abstract: | The effects of a credible, gradual exchange-rate-based disinflation program in a two sector economy is studied in this paper. The reductions in the rate of devaluation reduce the monetary wedge generated by the cash-in-advance constraint leading to a gradual increase in absorption that yields progressive real exchange rate appreciations and current account deficits. An initial boom in economic activity is not followed by later contraction as supply of labor expands during the length of program. The model's predictions are in accordance with the stylized facts on disinflation in chronic-inflation countries in many cases. |
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