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Working Paper
Macroeconomic instability of the less developed country economy when bank credit is rationed
During the early 1980s, many less developed countries (LDCs) experienced a phenomenon which is not readily explicable using conventional macroeconomic theory: accelerating inflation coupled with output contraction. Moreover, arguments based on supply shocks do not adequately explain the performance of the LOCs over this period. In explaining the apparent anomaly of accelerating inflation coupled with output contraction, the model developed here assigns an important role to the availability of bank credit. ; In many LDCs, the government fixes interest rates on bank deposits and loans. If rates ...
Working Paper
Real interest rates during the disinflation process in developing countries
This paper addresses a phenomenon often noted in association with programs aimed at stabilizing high rates of inflation: a rise in the ex post real interest rate following implementation of the disinflation strategy. Such increases have been observed in connection with the stopping of European hyperinflations in the 1920s, as well as during the more recent experiences of disinflation in Argentina and Israel. To better understand this behavior, we develop a very general model of interest rate determination in a small open economy with two goods--traded and non-traded--and three assets--money, ...