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Oya Celasun

( Dornbusch, 1982 , and Rodriguez, 1982 ). 3 More recently, Rebelo and Végh (1995) have shown that sticky inflation combined with supply effects of the stabilization can account for the qualitative properties of the business cycle associated with ERBS. At the other end of the spectrum, Calvo (1986) and Calvo and Végh ( 1993 , 1994a ) show, in a series of influential papers, that in models with perfectly forward-looking price setting and without inflation stickiness, the persistence of inflation and the boom-recession cycle can be explained by the lack of credibility

Oya Celasun
Exchange rate-based inflation stabilization (ERBS) policies are associated with a boom-recession cycle in economic activity and sustained real exchange rate appreciation. A class of models in the literature has explained these empirical regularities with the lack of credibility of the stabilization plans. The lack-of-credibility models typically assume perfectly forward-looking pricing behavior without inflation stickiness and attribute the slow decline in inflation to the consumption boom that occurs due to the perceived temporariness of the ERBS policy. This paper tests the empirical validity of forward-looking pricing behavior in Mexico and Turkey, two countries which have experienced ERBS. It finds that the forward- and backward-looking components of inflation weigh approximately equally in pricing behavior, and therefore, that inflation is partially sticky. The paper then develops the theoretical implications of partial inflation stickiness in a lack of credibility model of ERBS and concludes that the presence of stickiness significantly reduces the persistence of the consumption boom predicted by the model, but helps to explain the recession in the late phase of the stabilization.
International Monetary Fund. Western Hemisphere Dept.

. Conclusion References TABLES 1. Summary Statistics of Main Variables 2. Labor Market Flexibility and Inflation 3. Central Bank Institutions and Inflation 4. Fiscal Responsibility and Inflation 5. Estimated Potential Reduction in Inflation 6. Labor Market Flexibility and Inflation Stickiness 7. Central Bank Institutions and Inflation Stickiness 8. Fiscal Responsibility and Inflation Stickiness EXPORT PRODUCT DIVERSIFICATION ANALYSIS FOR URUGUAY WITH MACHINE LEARNING A. Introduction B. Measuring Export Diversification C. Why Uruguay’s Goods

Mr. Guy M Meredith, Mr. Bankim Chadha, and Mr. Paul R Masson
This paper focuses on the output costs of disinflation. A model of inflation with both forward and backward elements seems to characterize reality. Such an inflation model is estimated using data for industrial countries, and the output costs of a disinflation path are calculated, first analytically in a simple theoretical model, then by simulation of a global, multi-region empirical model. The credibility of a preannounced path for money consistent with the lowest output loss is considered. An alternative, more credible policy may be to announce an exchange rate peg to a low inflation currency.
Mr. Guy M Meredith, Mr. Bankim Chadha, and Mr. Paul R Masson

VI. Conclusion References List of Tables 1. Estimation Results for the Non-Oil GNP Deflator, Common Parameters 2. Estimation Results for the Non-Oil GNP Deflator, Nonlinear Capacity Utilization Effect 3. Estimation Results for the Non-Oil. GNP Deflator, Region-Specific Parameters 4. U.S. GDP Losses for Alternative Disinflation Programs 5. U.S. GDP Losses for Alternative Disinflation Programs With Different Degrees of Inflation Stickiness 6. Effects on Other Industrial Countries of an Immediate Cut in U.S. Money Growth (Program 1) 7. Japanese

Oya Celasun

-based inflation stabilization (ERBS) policies are associated with a boom-recession cycle in economic activity and sustained real exchange rate appreciation. A class of models in the literature has explained these empirical regularities with the lack of credibility of the stabilization plans. The lack-of-credibility models typically assume perfectly forward-looking pricing behavior without inflation stickiness and attribute the slow decline in inflation to the consumption boom that occurs due to the perceived temporariness of the ERBS policy. This paper tests the empirical

International Monetary Fund. Western Hemisphere Dept.

centralizedcollective bargaining Increase flexible wage determination Improve central bank transparency Implement fiscal rules Reduce public debt Percentage reduction in inflation 99% 83% 34% 14% 2% Projected inflation rate (in %) 4.9 5.3 7.3 8.6 9.6 1/ From the 2020 inflation level of 9.8 percent. Structural Factors and Inflation Stickiness 22. One way that structural factors can affect inflation is by increasing its persistence . For example, as discussed earlier, backward wage indexation to past inflation

Mr. Bankim Chadha, Mr. Paul R Masson, and Mr. Guy M Meredith

, in particular the dependence of current inflation on past and future expected inflation. The implications of two extreme benchmark cases are considered. First, a model in the tradition of Phelps and Friedman with adaptive expectations is shown to imply a weight of unity on past inflation in determining current inflation—that is, there is complete “inflation stickiness”—and a weight of zero on future expected inflation. Second, the Calvo (1983a , 1983b ) model is shown to place a weight of unity on future expected inflation, and actual inflation is independent of