Israel 1983: A Bout of Unpleasant Monetarist Arithmetic
AbstractFrom 1970 to 1985, Israel experienced high inflation. It rose in three jumps to new plateaus and eventually exceeded 400% per annum. This paper claims that anticipated monetary and fiscal effects of a massive government bailout of owners of fallen bank shares caused the last big jump in inflation that occurred in October 1983. Bank shares had just collapsed after a scandal in which it was revealed that banks had long manipulated their share prices. The government promised to reimburse innocent owners for the diminished value of their bank shares, but only after four or five years. The public believed that promise and public debt therefore implicitly increased by a large amount. That implied future monetary expansions. Because that was foreseen, inflation immediately rose as predicted by the unpleasant monetarist arithmetic of Sargent and Wallace (1981).
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6792.
Date of creation: Apr 2008
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Other versions of this item:
- Thomas Sargent & Joseph Zeira, 2011. "Israel 1983: A bout of unpleasant monetarist arithmetic?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(3), pages 419-431, July.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-04-29 (All new papers)
- NEP-CBA-2008-04-29 (Central Banking)
- NEP-HIS-2008-04-29 (Business, Economic & Financial History)
- NEP-MAC-2008-04-29 (Macroeconomics)
- NEP-MON-2008-04-29 (Monetary Economics)
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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2006-20, Federal Reserve Bank of Atlanta.
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- יוסף זעירא in Wikipedia (Hebrew)
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