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Stopping Hyperinflations Past and Present

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  • Rudiger Dornbusch
  • Stanley Fischer

Abstract

We examine four successful stabilizations from high inflation -- Germany in 1923,Austria in 1922, in Poland 1924-27, Italy 1947 --and the two ongoing attempted stabilization in Israel and Argentina, with the aim of identifying general lessons from those episodes. The key issues in a stabilization are the budget, the exchange rate, and money. Budget deficits were significantly reduced in each case , but were not in all cases completely removed. The exchange rate was pegged in each case , through in all but the Italian case, each stabilization was also preceded by at least one episode in which attempted stabilization through exchange rate pegging was unsuccessful. As pointed out by Sargent and others , money growth rates were high after each stabilization, suggesting that any stabilization that strictly controls the growth of money will produce serious recession. A common feature of stabilizations is a period of extremely high real interest rates.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1810.

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Date of creation: Jan 1986
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Publication status: published as Dornbusch, Rudiger and Stanley Fischer. "Stopping Hyperinflations Past and Present," Review of World Economics (Weltwirtschaftliches Archiv), Vol. 122, no. 1, (March 1986), pp. 1-47.
Handle: RePEc:nbr:nberwo:1810

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  1. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
  2. Thomas J. Sargent, 1981. "The ends of four big inflations," Working Papers 158, Federal Reserve Bank of Minneapolis.
  3. Rockoff,Hugh, 1984. "Drastic Measures," Cambridge Books, Cambridge University Press, number 9780521244961, Fall.
  4. Black, Fischer, 1974. "Uniqueness of the price level in monetary growth models with rational expectations," Journal of Economic Theory, Elsevier, vol. 7(1), pages 53-65, January.
  5. Rudiger Dornbusch, 1984. "Argentina Since Martinez De Hoz," NBER Working Papers 1466, National Bureau of Economic Research, Inc.
  6. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August.
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