Monetary and Exchange Rate Dynamics During Disinflation: An Empirical Analysis

By Lei Zhang, A. J Hamann, Andres F Arias Leiva

February 1, 2005

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Lei Zhang, A. J Hamann, and Andres F Arias Leiva. Monetary and Exchange Rate Dynamics During Disinflation: An Empirical Analysis, (USA: International Monetary Fund, 2005) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Based on the observed behavior of monetary aggregates and exchange rates, we classify inflation-stabilization episodes into two categories: de facto exchange rate-based stabilizations (ERBS) and non-ERBS. Unlike the standard de jure ERBS studied in the literature, de facto ERBS encompass cases in which the central bank intervenes in the foreign exchange market but does not preannounce the use of an exchange rate anchor. The number of the de facto ERBS is twice as large as that of de jure ERBS. Output dynamics during disinflation do not differ significantly between these two groups. We conclude that empirical studies on the effects of exchange rate anchors must seek to disentangle the effects of their announcement from those related to their role in the remonetization process.

Subject: Disinflation, Exchange rate anchor, Exchange rates, Inflation, Monetary base

Keywords: Central bank, Cluster analysis, U.S. dollar, WP

Publication Details

Pages:

34
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2005/033
Stock No:

WPIEA2005033
ISBN:

9781451860528
ISSN:

1018-5941

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