The theoretical basis for the"heterodox shocks"recently implemented in Argentina and Brazil is that chronic inflation is essentially inertial - the product of staggered prices and wage adjustments. The underlying assumption is that the economic process is a cooperative game. Without legal and other forms of coercion, however, individuals tend to cheat - to fix their prices above average to start with. A basic flaw of the"heterodox"stabilization programs was to assume that stabilizing the price level was a precondition for fiscal equilibrium and eventual fiscal reform - instead of the reverse. The fiscal austerity promised after stabilization was never accomplished - blocked by bureaucrats and special interest groups interested in maintaining the status quo. The challenge in these countries is to devise economic programs that could make long-term stabilization programs viable and politically acceptable.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.