Multiple equilibria, Balance of Payment crises and stabilization plans
Keywords:
multiple equilibria, econd-generation crises, balance of paymentsAbstract
This article aims to cast doubt on the generalized idea that failures when implementing stabilization plans or the materialization of a balance of payment crisis are the inevitable ending of a determined macroeconomic trajectory. To support the statement, we introduce the theoretical concept of multiple equilibria. Moreover, we briefly review learned lessons over recent stabilization experiments in Latin America. Balance of payment disequilibria, increasing stocks of sovereign debt and financial vulnerability generally lead a given economy into a multiple equilibria scenario. The instantiation of a certain outcome will depend on agents’ expectations and whether shocks that coordinate expectations (sunspots) hit or not the economy. A second generation of balance-of-payment-crises, such as the one portraited by Maurice Obstfeld, analytically capture our main point.
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