Publications
Publications
- Economics & Politics
On the Political Economy of Temporary Stabilization Programs
By: Laura Alfaro
Abstract
This paper provides a political economy explanation for temporary exchange-rate-based stabilization programs by focusing on the distributional effects of real exchange-rate appreciation. I propose an economy in which agents are endowed with either tradable or nontradable goods. Under a cash-in-advance assumption, a temporary reduction in the devaluation rate induces a consumption boom accompanied by real appreciation, which hurts the owners of tradable goods. The owners of nontradables have to weigh two opposing effects: an increase in the present value of nontradable goods wealth and a negative intertemporal substitution effect. For reasonable parameter values, owners of nontradables are better off.
Keywords
Government and Politics; Economy; Balance and Stability; Programs; Currency Exchange Rate; Cash; Value; Distribution
Citation
Alfaro, Laura. "On the Political Economy of Temporary Stabilization Programs." Economics & Politics 14, no. 2 (July 2002): 133–161.