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Intersectoral Conflict And Delays In Macroeconomic Stabilization, Arslan Razmi

Economics Department Working Paper Series

An important body of literature explores the political economy reasons
underlying delays in macroeconomic stabilization. This paper develops
a framework to analyze conflict between two groups of economic actors,
one that has an endowment of internationally tradable goods and another
that is endowed with non-tradable goods. The focus is on the exchange
rate policy in a developing country set-up where the government employs
seigniorage revenue to finance spending pre-stabilization, and faces fiscal
and balance of payments problems that necessitate stabilization with a step
devaluation. The presence of exchange rate and endowment uncertainty,
the role of forward-looking expectations, and the possibility …