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Title: Disinflation policy, trade liberalisation and price stickiness : a theoretical approach, with applications to Mexico
Author: Jiménez Gómez, Adrián
Awarding Body: University of Warwick
Current Institution: University of Warwick
Date of Award: 1993
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A model of indexation to a flexible exchange rate is presented in Chapter 2. An exchange rate depreciation induces an increase in the domestic price level. The degree of indexation is a function of the last observed steady state inflation rate. We show that successive increases in the money growth rate generate each time smaller output expansions. On the other hand, price indexation to a flexible exchange rate reduces the output losses of disinflation. An open economy model with micro-foundations and monopolistic competition is presented in Chapter 3. We analise the real effects of an increase in money, of a devaluation and of the implementation of price controls. The existence of a nominal rigidity is emphasised. The results depend on the relative magnitude of the parameters of the model. A two-period model with investment and imperfect competition is presented in Chapter 4. We assume that menu costs or price controls are only relevant in the first period. In this way, a permanent increase in money with a ‘rigid’ price level in period one generates a wealth effect that increases consumption demand in both periods. The reduction in the real cost of capital is the channel through which the effects of an increase in money in the presence of menu costs or of price controls persist. A two-period model to study Mexico’s trade deficit is presented in Chapter 5. Two alternative hypotheses are evaluated. The choice between an anticipated trade liberalisation or an expected devaluation depends on the assumption on real or nominal wage rigidity. A model to study Mexico’s exchange rate policy dilemma is presented in Chapter (i. There is a huge trade deficit but the exchange rate is the nominal anchor of the stabilisation programme. NAFTA represents capital account surpluses in the next years hut its ratification is uncertain. If the government devalues now, it gives up the possibility of completing the current stabilisation programme in case NAFTA being ratified. Hut if the government does not devalue and NAFTA is rejected, higher inflation costs will be born. The government minimises the expected costs in terms of inflation to determine the optimal exchange rate policy. We find a sufficient condition that guarantees, if fulfilled, the optimality of waiting for NAFTA.
Supervisor: Not available Sponsor: British Council ; Consejo Nacional de Ciencia y Tecnología (Mexico)
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available
Keywords: HG Finance