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The old and the new in heterodox stabilization programs : lessons from the 1960s and the 1980s

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  • Kiguel, Miguel A.
  • Liviatan, Nissan
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    Abstract

    The objective of this paper is to gain new insights about the strengths and weaknesses of the heterodox approach for stopping inflation based on the experience of programs implemented in some Latin American countries and Israel in the sixties and eighties. The most important income policies supported stabilization programs in recent years were those launched in Argentina in June 1985, in Israel in July 1985, in Brazil in February 1986 and most recently by Mexico in 1987 - 88. The authors point out that tight fiscal policy is critical to the success of a heterodox program, particularly during the flexibilization period in which price and wage controls are removed. In the failures of the 1960s and the 1980s, the budget situation had already deteriorated when controls were removed. A relaxed fiscal stance during the freeze led to a sharp acceleration of inflation later. Heterodox programs fail not because income policies are poorly designed but because the fiscal effort does not persist.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 323.

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    Date of creation: 31 Dec 1989
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    Handle: RePEc:wbk:wbrwps:323

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    Related research

    Keywords: Environmental Economics&Policies; Economic Theory&Research; Insurance&Risk Mitigation; Insurance Law; Financial Intermediation;

    References

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    1. Cukierman, A. & Liviatan, N., 1989. "Optimal Accommodation By Strong Policymakers Under Incomplete Information," Papers, Tel Aviv 13-89, Tel Aviv.
    2. Foxley, Alejandro, 1980. "Stabilization policies and stagflation: The cases of Brazil and Chile," World Development, Elsevier, Elsevier, vol. 8(11), pages 887-912, November.
    3. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(4), pages 589-610, August.
    4. Cardoso, Eliana A & Dornbusch, Rudiger, 1987. "Brazil's Tropical Plan," American Economic Review, American Economic Association, American Economic Association, vol. 77(2), pages 288-92, May.
    5. Helpman, Elhanan & Leiderman, Leonardo, 1988. "Stabilization in high inflation countries: Analytical foundations and recent experience," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 28(1), pages 9-84, January.
    6. Malan, Pedro S. & Bonelli, Regis, 1977. "The Brazilian economy in the seventies: Old and new developments," World Development, Elsevier, Elsevier, vol. 5(1-2), pages 19-45.
    7. Kiguel, Miguel A., 1989. "Inflation in Argentina : stop and go since the Austral plan," Policy Research Working Paper Series 162, The World Bank.
    8. Solimano, Andres, 1989. "Inflation and the costs of stabilization : country experiences, conceptual issues, and policy lessons," Policy Research Working Paper Series 226, The World Bank.
    9. Rudiger Dornbusch & Mario Henrique Simonsen, 1987. "Inflation Stabilization with Incomes Policy Support: A Review of the Experience in Argentina, Brazil and Israel," NBER Working Papers 2153, National Bureau of Economic Research, Inc.
    10. Kiguel, Miguel A & Liviatan, Nissan, 1988. "Inflationary Rigidities and Orthodox Stabilization Policies: Lessons from Latin America," World Bank Economic Review, World Bank Group, World Bank Group, vol. 2(3), pages 273-98, September.
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