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Working Paper
High real interest rates in the aftermath of disinflation: is it a lack of credibility?
High real interest rates have been observed in many countries for several months after the adoption of disinflation programs. While they may reflect primarily a liquidity crunch, high ex post real interest rates can also be explained in terms of an ex post error in inflation expectations that reflects a lack of credibility of the low-inflation policy. The latter hypothesis is tested using data for Argentina, Israel, and Mexico during the implementation of the stabilization programs in the mid-1980s.
Discussion Paper
Seigniorage and the welfare cost of inflation: evidence from an intertemporal model of money and consumption
This paper empirically investigates the restrictions embodied in a popular dynamic monetary model for the cross relations between consumption, money holdings, inflation and assets returns using quarterly data for the high-inflation economy in Israel, 19701988. The model considered includes money in agents utility function. A set of the estimated parameters is used in the analysis to assess the models quantitative implications for seigniorage and for the welfare costs of inflation. The estimates are found to account well for the observed stability over time of seigniorage in Israel and imply ...