Money-Based Versus Exchange-Rate-Based Stabilization: Is There Space for Political Opportunism?

June 1, 2004

Preview Citation

Format: Chicago

Ari Aisen. Money-Based Versus Exchange-Rate-Based Stabilization: Is There Space for Political Opportunism?, (USA: International Monetary Fund, 2004) 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

In response to high and chronic inflation, countries have adopted different stabilization policies. However, the extent to which these stabilization programs were designed for political motives is not clear. Since exchange-rate-based stabilizations (ERBS) create an initial consumption boom followed by a contraction, whereas money-based stabilizations (MBS) generate a consumption bust followed by a recovery, policymakers may consider the timing of elections when determining the nominal anchor for stabilization. This paper finds strong evidence that the choice of nominal anchor depends on elections, implying the existence of political opportunism. ERBS are, on average, launched before elections while MBS are set after them.

Subject: Consumption, Exchange rate anchor, Inflation, International reserves, Nominal anchors

Keywords: Election cycle, ERBS attempt, ERBS program, Next election, Stabilization program, WP

Publication Details

Pages:

35
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/094
Stock No:

WPIEA0942004
ISBN:

9781451851755
ISSN:

1018-5941

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