Political Stabilization Cycles in High Inflation Economies
AbstractHigh inflation economies often exhibit stop-go cycles of inflation, rather than smooth inflationary processes. This paper relates these stop-go episodes of inflation to a political cycle: the government can try to repress inflation until after the elections in order to increase the chances of being reelected. This is modeled as a two-period game of incomplete information where voters try to pick the most competent government, and inflation (which signals lack of competency) can be lowered by the government in the short run through foreign debt accumulation. Several stabilization episodes, such as the Primavera Plan in Argentina and the Cruzado Plan in Brazil, are used to motivate the model.
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Bibliographic InfoPaper provided by University of California at Berkeley in its series Center for International and Development Economics Research (CIDER) Working Papers with number C94-039.
Date of creation: 01 Aug 1994
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Other versions of this item:
- Stein, Ernesto H. & Streb, Jorge M., 1998. "Political stabilization cycles in high-inflation economies," Journal of Development Economics, Elsevier, vol. 56(1), pages 159-180, June.
- Ernesto H. Stein & Jorge M. Streb, 1997. "Political Stabilization Cycles in High Inflation Economies," CEMA Working Papers: Serie Documentos de Trabajo. 123, Universidad del CEMA.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
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