The Business Cycle Associated with Exchange-Rate-Based

Disinflation programs in chronic inflation countries do not normally follow the usual Phillips curve tradeoff in the medium run. Instead of having a sharp recession in the early stage of stabilization, there often is an initial expansion of output fol-lowed by a recession and balance of payments difficulties. This pattern is related to programs that use the exchange rate as an instrument of disinflation. The Policy. Research. and Extemal Affairs Complex distributes PRE Working Papers to disscnmnatc he findings of work rn progress and to encourage the exchangc of ideas among Bank staff ard all others interested in developrnent Issues These papers carry the names of thc authors, rnflect only thcir views. and should he used and cited accordingly The findings, interpretauons, and conclusions are the authors own. They should not be aitobuted to the World Bank. its Board of Directors, its managemcnt, or any of its member countnes. Pu bl ic Di sc lo su re A ut ho riz ed Pu bl ic Di sc lo su re A ut ho riz ed Pu bl ic Di sc lo su re A ut ho riz ed Pu bl ic Di sc lo su re A ut ho riz e