کاهش تورم و طرف عرضه

This paper studies the dynamics associated with permanent and temporary reductions in the devaluation rate. The analysis uses an intertemporal optimizing model of a small open economy with imperfect capital markets and endogenous labor supply. With a constant capital stock, the model predicts an initial reduction in real wages and an expansion in output. Consumption falls on impact but increases afterward. In addition, with a temporary shock, a current account deficit emerges and a recession sets in at a later stage. With endogenous capital accumulation, numerical simulations show that the model is also capable of predicting a boom in investment.

Stabilization programs based on the use of the exchange rate as a nominal anchor have often been characterized by a boom-recession cycle, a real exchange-rate appreciation, and persistent current account deficits. In the Southern Cone “tablita” experiments of the late 1970s in Argentina, Chile, and Uruguay, for instance, aggregate consumption increased in real terms by an average of 10% in the first year following the implementation of the plan, before slowing down (see Végh, 1992 and Calvo and Végh, 1994). An expansion in domestic investment (often associated with an increase in imports of capital goods) and a rise in labor supply have also been observed in some of these programs (Roldós, 1995 and Rebelo and Végh, 1997). As documented by Fischer et al. (2002) the output and domestic absorption booms appear to have been observed in both successful and failed exchange-rate-based stabilization attempts, whereas money-based stabilization programs have generally been accompanied by a protracted recession.1 Various theories have been proposed to explain the boom-recession cycle in exchange-rate-based stabilization programs. One branch of literature, developed in particular by Helpman and Razin (1987), emphasizes the wealth effects of stabilization programs. A second approach is the temporariness hypothesis, developed by Calvo and Végh (1993). A key feature of this approach is its emphasis on the interactions between the lack of credibility (modeled as a temporary policy change) and intertemporal substitution effects. A transitory reduction in the devaluation rate is equivalent to a temporary fall in present prices relative to the future, and induces an intertemporal substitution in consumption toward the present—leading to a rise in output, real exchange-rate appreciation, and a current account deficit. However, evidence on the temporariness hypothesis is mixed. The econometric study by Reinhart and Végh (1995) suggested that although it can explain the behavior of consumption in some of the programs implemented in the 1980s, it is less useful for understanding the tablita experiments of the late 1970s in Argentina, Chile, and Uruguay. Given the low intertemporal substitution parameters estimated for these countries, nominal interest rates would have had to fall by substantially more than they actually did to account for a sizable fraction of the consumption boom recorded in the data. A third approach, developed by De Gregorio et al. (1998), emphasizes the role of durable goods accumulation in generating a consumption boom-bust cycle, without resorting to lack of credibility. A fourth approach to the behavior of consumption and output in exchange-rate-based programs emphasizes the supply-side effects of stabilization. Roldós (1995), in particular, analyzed these effects in a dependent-economy model with physical capital (which plays a dual role as a financial asset and a production input), endogenous labor supply, and a cash-in-advance constraint (following Stockman, 1981) on purchases of both consumption and capital goods. Roldós showed that, as a result of the cash-in-advance constraint, inflation creates a wedge between the real rate of return on foreign-currency denominated assets and that of domestic-currency denominated assets—which include money and capital.2 A stabilization program based on a permanent—and thus fully credible, in the Calvo–Végh sense—reduction in the devaluation rate reduces this wedge (by lowering inflation) and leads to an increase in the desired capital stock in the long run. In the short run, consumption and investment increase, causing a real appreciation, a current account deficit, and an increase in output of home goods. During the transition period, firms increase their purchases of capital goods and their capital stock, drawing labor resources into the (capital-intensive) tradables sector, raising wages and leading to further appreciation of the real exchange rate. Over time, the increase in output of tradable goods lowers the initial current account deficit generated on impact by the increase in aggregate demand. In a subsequent paper, Roldós (1997) focused on a gradual and permanent reduction in the nominal devaluation rate, as in Obstfeld (1985). He showed that this policy leads to an initial boom when the intertemporal elasticity of substitution in labor supply is larger than that in consumption. The expansion in output occurs in both the tradable and nontradable production sectors, as a result of a reduction in real wages. The reduction in the devaluation rate lowers inflation and raises the marginal value of wealth, thereby raising the opportunity cost of leisure and inducing an increase in labor supply in the initial phase of the program. The continued reduction in inflation over time leads to further increases in the supply of labor and downward pressure on wages. 3 However, in neither one of these contributions does the model predict a recession following the expansionary phase, as suggested by some of the evidence. The purpose of this paper is to explore further the role of supply-side factors in the dynamics of output and absorption in exchange-rate-based stabilization programs.4 As in some existing studies, such as those of Lahiri (2001) and Roldós (1995), we explicitly model labor supply decisions and capital accumulation in an infinite-horizon, intertemporal optimizing framework with representative agents. The analysis, however, departs from the current literature by assuming (following Agénor, 1997 and Agénor, 1998) that domestic households face imperfect world capital markets. As a result of these imperfections, domestic interest rates are determined by the equilibrium condition of the money market. In optimizing models with infinite horizon and perfect capital mobility (as in most of the contributions cited earlier), it is necessary to impose equality between the (constant) rate of time preference and the world interest rate to get a finite and positive level of consumption in the steady state. A problem with that approach, however, is that the steady state—and the adjustment path to it—depends not only on the dynamic structure of the model but also on the economy’s initial conditions.5 This “hysteresis” phenomenon, as pointed out by Turnovsky and Sen (1991) in a related context, is what results in temporary shocks having permanent effects.6 In our framework, by contrast, the rate of time preference does not need to be equal at all times to the world interest rate and there are therefore no hysteresis effects. More importantly perhaps for the issue at hand, the dynamics of the economy induced by an exchange-rate-based disinflation differ dramatically under perfect and imperfect world capital markets, as discussed by Agénor (1997). In the former case, the uncovered-interest-parity condition holds continuously, and private foreign borrowing can take any value a priori. A reduction in the devaluation rate lowers the opportunity cost of holding money and raises the demand for real cash balances, which is matched by an increase in money supply brought about by an instantaneous increase in foreign borrowing. The resulting inflow of capital is monetized by exchanging the foreign exchange for domestic currency at the central bank, in such a way that the economy’s net stock of foreign debt remains constant. There are no real effects, and the adjustment process displays no dynamics; the economy jumps instantaneously to the new steady state. By contrast, with imperfect world capital markets, the long-run value of private foreign borrowing is “pinned down” by the difference between the world risk-free interest rate and the rate of time preference, and therefore cannot vary across steady states in response to a change in the devaluation rate. Thus, the increase in real cash balances cannot take place through a once-and-for-all inflow of capital. For official reserves to expand, and for an expansion in money supply to match the increased demand for money, the economy must now generate a sequence of current account surpluses. In turn, because higher official reserves imply a reduction in the economy’s net external debt (given that private foreign borrowing remains constant across steady states), the lower deficit in the services account must be accompanied by a lower trade surplus, that is, higher private consumption. Thus, with imperfect world capital markets, adjustment to a reduction in the devaluation rate generate real effects both during the transition process and the long run. Because we account also for changes in labor supply and capital accumulation in the present paper, we are able to show that these real effects may entail also changes in employment, leisure, and investment. The remainder of the paper is organized as follows. Section 2 presents the basic model, which introduces variable labor supply in the framework developed by Agénor, 1997 and Agénor, 1998, while assuming that the capital stock is constant. Section 3 examines the short- and long-term effects of a reduction in the nominal devaluation rate in this setting. Section 4 extends the basic framework to account for capital accumulation in the presence of installation costs, using a Tobin-q approach to investment decisions. A key feature of the extended model is that, with endogenous labor supply, investment decisions are not independent of consumption decisions. Changes in consumption alter the marginal utility of leisure, and this affects the supply of labor at any given wage. As a result, the marginal product of capital changes and this in turn affects investment—to an extent that depends on capital installment costs. Because of the complexities of the resulting model, the transitional dynamics associated with a reduction in the nominal devaluation rate are examined in Section 5 using numerical simulations. Finally, Section 6 summarizes the main results of the analysis and offers some suggestions for further research.

This paper studied the role of supply-side factors in the dynamics of output and domestic absorption in exchange-rate-based stabilization programs. First, a basic framework was presented to illustrate the main differences between this study and some of the existing analytical literature on these programs. In particular, the economy was modeled using an infinite-horizon, intertemporal optimizing framework in which labor supply is endogenous and domestic households face imperfect world capital markets. With imperfect capital mobility, equality between the rate of time preference does not need to be equal at all times to the world interest rate to ensure a stationary solution (which therefore does not depend on initial values), and a permanent reduction in the devaluation rate entails transitional dynamics. It was shown that a temporary reduction in the devaluation rate leads to a boom-recession cycle in output and consumption (in the latter case following an initial, short-lived downward movement) and a sequence of current account deficits, all in line with some of the evidence on exchange-rate-based stabilization. The basic framework was then further extended to account for capital accumulation in the presence of investment installation costs. We showed that the extended model was able to replicate a boom-recession behavior for investment and domestic absorption as well, as suggested by the evidence. This behavior emerges from both permanent and transitory shocks. The major economic variable that our analysis of exchange-rate-based stabilization fails to describe is the real exchange rate. This limitation is due, of course, to the fact that we model a one-good economy only. However, our framework can be further developed to include traded and nontraded sectors, as in some existing contributions, as well as distribution costs, which appear to be important to explain the existing evidence (see Burstein et al., 2003). With sticky prices in the nontradables sector, for instance, a reduction of the devaluation rate would directly affect prices in the traded sector only, implying that overall inflation would not fall by as much as the devaluation rate. This would lead to an appreciation of the real exchange rate, as documented in the evidence. The distinction between tradables and nontradables would provide further insight on the behavior of consumption and the current account, notably by allowing for intratemporal substitution, in addition to consumption smoothing considerations.