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Signalling, Wage Controls and Monetary Disinflation Policy

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  • Persson, Torsten
  • van Wijnbergen, Sweder

Abstract

Wage and price controls have a long and somewhat disreputable history, presumably because of their frequent use in many countries as short run substitutes for measure~ with more lasting effects on the inflation rate. But, in 1985 and 1986, Argentina, Brazil, and Israel used extensive wage-price controls as part of more comprehensive disinflation programs, .often labeled "heterodox" stabilization programs. To date, the Israeli stabilization seems to have succeeded, while the Argentinean and Brazilian stabi1izations have clearly ended in failure. This experience raises many questions. One view is that controlling one nominal variable, namely the money supply, is enough to bring down inflation provided that sound fiscal policies are also adopted. Therefore, wage and price controls should be avoided, because of their microeconomic costs. It is clear that controls do have microeconomic costs, but can they also have macroeconomic benefits? Under which circumstances do controls help in bringing down inflation, and when do they just suppress it temporarily? What is the required supporting role of fiscal and monetary policy while they are in place? These are the issues addressed in this paper.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 103 (1993)
Issue (Month): 416 (January)
Pages: 79-97

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Handle: RePEc:ecj:econjl:v:103:y:1993:i:416:p:79-97

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References

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  1. Rogoff, Kenneth, 1990. "Equilibrium Political Budget Cycles," American Economic Review, American Economic Association, vol. 80(1), pages 21-36, March.
  2. Elhanan Helpman, 1987. "Macroeconomic Effects of Price Controls: The Role of Market Structure," NBER Working Papers 2434, National Bureau of Economic Research, Inc.
  3. Persson, Torsten, 1988. "An introduction and a broad survey," European Economic Review, Elsevier, vol. 32(2-3), pages 519-532, March.
  4. Vickers, John, 1986. "Signalling in a Model of Monetary Policy with Incomplete Information," Oxford Economic Papers, Oxford University Press, vol. 38(3), pages 443-55, November.
  5. Paul R. Milgrom & John Roberts, 1984. "Price and Advertising Signals of Product Quality," Cowles Foundation Discussion Papers 709, Cowles Foundation for Research in Economics, Yale University.
  6. Backus, David & Driffill, John, 1985. "Rational Expectations and Policy Credibility Following a Change in Regime," Review of Economic Studies, Wiley Blackwell, vol. 52(2), pages 211-21, April.
  7. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, vol. 50(4), pages 863-94, July.
  8. In-Koo Cho & David M. Kreps, 1997. "Signaling Games and Stable Equilibria," Levine's Working Paper Archive 896, David K. Levine.
  9. Dani Rodrik, 1988. "Promises, Promises: Credible Policy Reform via Signaling," NBER Working Papers 2600, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Sweder van Wijnbergen, 1987. "Monopolistic Competition, Credibility and the Output Costs of Disinflation Programs: An Analysis of Price Controls," NBER Working Papers 2302, National Bureau of Economic Research, Inc.
  2. Gürbüz Beşek, Yeşim, 2011. "Crédibilité en matière de ciblage d'inflation," GIAM Working Papers 11-1, Galatasaray University Economic Research Center, revised 08 Feb 2011.
  3. Kiguel, Miguel A. & Liviatan, Nissan, 1988. "Inflationary rigidities and stabilization policies," Policy Research Working Paper Series 4, The World Bank.
  4. Agenor, Pierre-Richard & Asilis, Carlos M., 1997. "Price controls and electoral cycles," European Journal of Political Economy, Elsevier, vol. 13(1), pages 131-142, February.
  5. Kiguel, Miguel A. & Liviatan, Nissan, 1990. "Some implications of policy games for high inflation economies," Policy Research Working Paper Series 379, The World Bank.
  6. Dani Rodrik, 1988. "Promises, Promises: Credible Policy Reform via Signaling," NBER Working Papers 2600, National Bureau of Economic Research, Inc.
  7. Rodrik, Dani, 1991. "Policy uncertainty and private investment in developing countries," Journal of Development Economics, Elsevier, vol. 36(2), pages 229-242, October.
  8. Calvo, Guillermo & Vegh, Carlos, 1991. "Exchange rate stabilization under imperfect credibility," MPRA Paper 20486, University Library of Munich, Germany.
  9. Agenor, Pierre-Richard, 1995. "Credibility effects of price controls in disinflation programs," Journal of Macroeconomics, Elsevier, vol. 17(1), pages 161-171.
  10. van Wijnbergen, Sweder, 1991. "Should price reform proceed gradually or in a"big bang?"," Policy Research Working Paper Series 702, The World Bank.

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