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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.

Economic stabilization --- Foreign exchange rates --- Inflation (Finance) --- Adjustment, Economic --- Business stabilization --- Economic adjustment --- Stabilization, Economic --- Economic policy --- Econometric models. --- Banks and Banking --- Inflation --- Macroeconomics --- Money and Monetary Policy --- Monetary Policy --- Price Level --- Deflation --- Macroeconomics: Consumption --- Saving --- Wealth --- Monetary economics --- Banking --- Nominal anchors --- International reserves --- Exchange rate anchor --- Consumption --- Prices --- Monetary policy --- Foreign exchange reserves --- Economics --- Argentina

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Many inflation stabilizations succeed only temporarily. Using a sample of 51 episodes of stabilization from inflation levels above 40 percent, we show that most of the failures are explained by bad luck, unfavorable initial conditions, and inadequate political institutions. The evolution of trading partners' demand and U.S. interest rates captures the effect of bad luck. Past inflation affects the outcome in two different ways: a long history of high inflation makes failure more likely, while a high level of inflation prior to stabilization increases the chances of success. Countries with short-lived political institutions, a weak executive authority, and proportional electoral rules also tend to fail. After controlling for all these factors, we find that exchange-rate-based stabilizations are more likely to succeed. These findings are robust across measures of failure (two dichotomous and one continuous), sample selection criteria, and estimation techniques, including Heckman's correction for the endogeneity of the anchor.

Econometrics --- Foreign Exchange --- Inflation --- Macroeconomics --- Money and Monetary Policy --- Price Level --- Deflation --- Comparative or Joint Analysis of Fiscal and Monetary Policy --- Stabilization --- Treasury Policy --- Fiscal Policy --- Monetary Policy --- Estimation --- Monetary economics --- Econometrics & economic statistics --- Currency --- Foreign exchange --- Fiscal consolidation --- Exchange rate anchor --- Estimation techniques --- Real exchange rates --- Prices --- Fiscal policy --- Monetary policy --- Econometric analysis --- Econometric models --- Argentina

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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.

Electronic books. -- local. --- Foreign exchange rates -- Econometric models. --- Inflation (Finance) -- Econometric models. --- Interest rates -- Econometric models. --- Foreign Exchange --- Inflation --- Money and Monetary Policy --- Price Level --- Deflation --- Monetary Policy --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Monetary economics --- Macroeconomics --- Currency --- Foreign exchange --- Exchange rates --- Exchange rate anchor --- Monetary base --- Disinflation --- Prices --- Monetary policy --- Money supply --- Argentina --- Inflation (Finance) --- Foreign exchange rates --- Interest rates --- Econometric models.

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This paper argues that there is scope for monetary policy under an exchange rate anchor, and discusses the related monetary policy design and implementation. It shows that the exchange rate can be used as the main monetary policy instrument while the policy rate can target the exchange rate. An exchange rate anchor is compatible with an inflation objective, provided fiscal dominance is not an issue, monetary conditions are supportive of the peg, and the level of international reserves is adequate. The paper argues that, while an exchange rate anchor is more prone to policy inconsistencies, there is ample scope for strengthening monetary policy design and implementation under soft pegs. In that context, the principles of dichotomy and interest rate parity are critical.

Banks and Banking --- Foreign Exchange --- Money and Monetary Policy --- Policy Objectives --- Policy Designs and Consistency --- Policy Coordination --- Current Account Adjustment --- Short-term Capital Movements --- Monetary Policy --- Interest Rates: Determination, Term Structure, and Effects --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Development Planning and Policy: Trade Policy --- Factor Movement --- Foreign Exchange Policy --- Currency --- Foreign exchange --- Banking --- Monetary economics --- Exchange rates --- Exchange rate arrangements --- Exchange rate anchor --- Central bank policy rate --- Monetary policy --- Financial services --- Exchange rate policy --- Interest rates --- Banks and banking --- Singapore

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This paper is Part I of a two-volume study conducted as a part of the IMF's ongoing process of evaluating its lending facilities. It focuses on IMF-supported programs and macroeconomic performance during 1988-92, reflecting information available through the end of 1993. Part I provides an overview of the experiences during the arrangements reviewed: it describes the initial conditions faced in these countries, the adjustment strategies adopted, the degree to which programs were implemented, and the extent of sustained adjustment experienced.

International Monetary Fund --- International Finance --- Structural Adjustment (Economic Policy) --- Developing Countries --- International Relations --- Business & Economics --- Social Science --- Political Science --- Banks and Banking --- Exports and Imports --- Foreign Exchange --- Inflation --- Macroeconomics --- Price Level --- Deflation --- Interest Rates: Determination, Term Structure, and Effects --- International Investment --- Long-term Capital Movements --- Current Account Adjustment --- Short-term Capital Movements --- International economics --- Finance --- Currency --- Foreign exchange --- Monetary economics --- Real interest rates --- Capital inflows --- Exchange rate anchor --- Fiscal consolidation --- Prices --- Financial services --- Balance of payments --- Monetary policy --- Fiscal policy --- Interest rates --- Capital movements --- Papua New Guinea