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Insecurities of the old and marginalized: Inflation, oil shocks, financial crisis and social security

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  • Ashima Goyal

    ()
    (Indira Gandhi Institute of Development Research)

Abstract

The paper examines the impact of recent inflation and financial shocks on the vulnerable, and explores policy design to reduce both future shocks and vulnerability to shocks. Inflation affects the typical savings cum pension portfolio and the specific consumption basket of the old, as prices of services rise compared to manufactured goods. Money illusion and habit, which tend to increase with age, aggravate the psychological trauma associated with inflation. The decline of traditional sources of social security marginalizes those without savings, in the context of sustained rural urban and international migration. Trends determining inflation-domestic and global, institutional change, and greater openness explain why inflation has been moderate in India, compared to other emerging markets. Since the polity is averse to high inflation, and commodity price shocks are moderating, high inflation will not persist. But the shocks demonstrate the importance of food price inflation for aggregate inflation in populous South Asia. Therefore improvements in agricultural productivity, with supportive buffer stock, fiscal and monetary policy are critical to lower the level of chronic inflation. Regulatory changes to reduce excessive risktaking in financial markets and the aggravation of inflation from speculation are examined. Finally, other policy measures to improve security for the old and keep them an active, vital part of the community are drawn together.

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Bibliographic Info

Paper provided by Indira Gandhi Institute of Development Research, Mumbai, India in its series Indira Gandhi Institute of Development Research, Mumbai Working Papers with number 2009-003.

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Length: 26 pages
Date of creation: Mar 2009
Date of revision:
Handle: RePEc:ind:igiwpp:2009-003

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Keywords: Aged; Inflation; Oil shocks; Financial crisis; Social security;

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  1. Ashima Goyal, 2009. "Financial crises: reducing pro-cyclicality," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 2(1), pages 173-183.
  2. Gary B. Gorton, 2008. "The Panic of 2007," NBER Working Papers 14358, National Bureau of Economic Research, Inc.
  3. Hahn Robert & Passell Peter, 2008. "The Rush to Re-Regulate," The Economists' Voice, De Gruyter, vol. 5(3), pages 1-3, July.
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