Temporary stabilization: a Fréchet-Weibull extreme value distribution approach

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2012

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EconoQuantum

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Ce document est lié à :
http://www.redalyc.org/revista.oa

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REDALYC : Red de Revistas Científicas de América Latina y el Caribe, España y Portugal

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Red de Revistas Científicas de América Latina y el Caribe, España y Portugal

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EconoQuantum

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Economía y Finanzas extreme values Inflation stabilization

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Standard of value

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Francisco Venegas et al., « Temporary stabilization: a Fréchet-Weibull extreme value distribution approach », EconoQuantum, ID : 10670/1.263d37...

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This paper develops, in a small open economy of pure exchange framework, a stochastic model of exchange-rate-based inflation stabilization plan that is expected to be temporary. Agents have expectations of devaluation driven by a mixed diffusionjump process where the expected size of a possible devaluation is supposed to have an extreme value distribution of the Fréchet-Weibull type. Consumption and wealth equilibrium dynamics are examined when such a stabilization plan is implemented. It is assumed that financial markets are incomplete, that is, there are more risk factors than risky assets. Finally, the effects of exogenous shocks on economic welfare are assessed.

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