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Board of Governors of the Federal Reserve System (U.S.)
International Finance Discussion Papers
High real interest rates in the aftermath of disinflation: is it a lack of credibility?
Graciela L. Kaminsky
Leonardo Leiderman
Abstract

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.


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Graciela L. Kaminsky & Leonardo Leiderman, High real interest rates in the aftermath of disinflation: is it a lack of credibility?, Board of Governors of the Federal Reserve System (U.S.), International Finance Discussion Papers 543, 1996.
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Keywords: Interest rates
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