EXCHANGE RATE-BASED STABILIZATION IN LATIN-AMERICA

This paper examines the use of the exchange rate as a nominal anchor f or achieving price stability in Latin America. It will explore the imp act of exchange rate anchoring on the real sector by analyzing five st abilization programs. The paper will identify conditions that make exc hange rate-based stabilization successful and those that lead to its f ailure. It will also demonstrate that while the income effect can be i nstrumental in describing consumption booms associated with exchange r ate-based stabilizations, the popular view based on the credibility hy pothesis fails to explain key events associated with such programs. (C ) 1997 Elsevier Science Ltd.