01860cas a2200241 a 4500 AALejournalIMF007896 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451849660 1018-5941 BD-DhAAL BD-DhAAL Agenor, Pierre-Richard. The Behavior of Real Interest Rates in Exchange-Rate Based Stabilization Programs / Pierre-Richard Agenor. Washington, D.C. : International Monetary Fund, 1994. 1 online resource (46 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper examines the behavior of real interest rates in exchange-rate based stabilization programs. The analysis is based on a model with imperfect capital mobility and optimizing agents. A permanent reduction in the devaluation rate is first shown to have an ambiguous effect on real interest rates on impact. The analysis is then extended to consider a stabilization program characterized by an initial reduction in the rate of devaluation of the nominal exchange rate, and the announcement of a future increase in income taxes. The impact effect on real interest rates is shown to depend upon the degree of credibility of the announcement. Real interest rates may fall if agents do not believe that taxes will be raised, and rise if the future tax reform is sufficiently credible. Mode of access: Internet IMF Working Papers; Working Paper ; No. 1994/075 Full text available on IMF http://elibrary.imf.org/view/journals/001/1994/075/001.1994.issue-075-en.xml IMF e-Library