Wehinger, Gert D.
Exchange rate-based stabilization. Pleasant monetary dynamics?
Department of Economics Working Paper Series, 50.
Inst. für Volkswirtschaftstheorie und -politik, WU Vienna University of Economics and Business, Vienna.
High inflation economies have ultimately been successful in stabilising their prices using the exchange rate as a nominal anchor. Besides stabilization, these recent examples have shown boom-recession cycles, contrary to what can be expected from (pure) money-based stabilizations. Various theoretical explanations of such boom-cycles are discussed and a model of aggregate supply and demand generating such an outcome is developed. There the boom dynamics depend mainly on a slump in real interest rates and wage flexibility. (author's abstract)