Essays on the crawling-peg and stabilization policy
Carrasquilla, Alberto
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https://hdl.handle.net/2142/20960
Description
Title
Essays on the crawling-peg and stabilization policy
Author(s)
Carrasquilla, Alberto
Issue Date
1989
Doctoral Committee Chair(s)
Baer, Werner W.
Department of Study
Economics
Discipline
Economics
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, General
Language
eng
Abstract
This thesis is made up of four self-contained essays, two referred to short-run stabilization issues, one referred to long-run policy and one of a more atemporal nature.
Chapter One discusses the place of the crawling peg regime within the general area of exchange rate economics. The tradeoff between stability and fexibility, which is at the center of exchange rate theory, is the fundamental conceptual issue explored. It first discusses the classic literature and it later builds upon a framework into which the issues are incorporated.
Chapter Two deals with very different episodes in which the crawling peg was pursued in instances of severe external disequilibrium; Argentina in 1979 and Colombia in 1984. It briefly describes the cases, offering particular interpretative models for each and a framework for a unified empirical discussion of the issues posed. Cointegration evidence is offered supporting the claim that credibility shifted in opposite directions during these episodes; the stabilization process enhancing policy credibility in Colombia.
Chapter Three offers analytical background to the issue of exchange rate adjustments in a stabilization process, exploiting the type of links established in the Balance of Payments Crises literature. Stabilization is defined within the context of credibility, and two alternative policy sequencing schemes are explored, in contrast to the Balance of Payments Crisis scenario. When fiscal policy is introduced first several sources of potential instability are shown to be eliminated.
Chapter Four contains an analysis referred to the observed behavior of the nominal and real exchange rates under the crawling peg, for the specific case of Colombia. Several empirical exercises, based on univariate time-series methods, regarding policy stability, persistence of nominal shocks and the short and long run role of PPP in the evolution of the exchange rate are presented. Policy is found to be clearly active and largely stabilizing; PPP is disregarded both in the short and in the long-run and the deviations are found to have macroeconomic effects.
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