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The Conquest of South American Inflation

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  • Thomas Sargent
  • Noah Williams
  • Tao Zha

Abstract

We infer determinants of Latin American hyperinflations and stabilizations by using the method of maximum likelihood to estimate a hidden Markov model that assigns roles both to fundamentals in the form of government deficits that are financed by money creation and to destabilizing expectations dynamics that can occasionally divorce inflation from fundamentals. Levels and conditional volatilities of monetized deficits drove most hyperinflations and stabilizations, with a notable exception in Peru, where a cosmetic reform of the type emphasized by Marcet and Nicolini occurred. (c) 2009 by The University of Chicago. All rights reserved..

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 117 (2009)
Issue (Month): 2 (04)
Pages: 211-256

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Handle: RePEc:ucp:jpolec:v:117:y:2009:i:2:p:211-256

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  1. Martin Ellison & Liam Graham & Jouka Vilmunen, 2005. "Strong Contagion with Weak Spillovers," Money Macro and Finance (MMF) Research Group Conference 2005 91, Money Macro and Finance Research Group.
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