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- Title
REAL BALANCES, THE EXCHANGE RATE, AND INDEXATION: REAL VARIABLES IN DISINFLATION.
- Authors
Fischer, Stanley
- Abstract
The paper shows first that real exchange rate appreciation typically reduces, but may increase, the output costs of disinflation. The direct favorable effects of cheaper imports on consumer prices, on the prices of imported inputs, on wage demands, and on the demand for money may be outweighed by the unemployment caused by the trade deficit. Second, the effects of wage indexation on the costs of disinflation are reexamined. Ex ante indention speeds up disinflation. Ex post indexation, the type observed in practice, automatically increases the real wage at the start of a disinflation and may therefore increase the sacrifice ratio.
- Subjects
FOREIGN exchange rates; MONETARY policy; ECONOMIC indicators; INTERNATIONAL trade; INDEXATION (Economics); PRICE deflation; UNEMPLOYMENT; INCOME
- Publication
Quarterly Journal of Economics, 1988, Vol 103, Issue 1, p27
- ISSN
0033-5533
- Publication type
Article
- DOI
10.2307/1882641