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Inflation's Children: Tales of Crises That Beget Reforms


  • Bruno, Michael
  • Easterly, William


Are broad reforms the children of high inflation? Do growth recoveries follow? We find that countries that had external debt crises with high inflation both reformed more and recovered better than countries that had external debt crises with low inflation. Countries with extremely high inflation also later wound up with lower inflation than countries that has moderately high inflation. The low inflation debtor countries had more aid than the high inflation debtor countries, which may have created stronger incentives to reform in the high inflation countries. Recent reforms look like they are the children of high inflation, even if further paternity tests are in order.
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  • Bruno, Michael & Easterly, William, 1996. "Inflation's Children: Tales of Crises That Beget Reforms," American Economic Review, American Economic Association, vol. 86(2), pages 213-217, May.
  • Handle: RePEc:aea:aecrev:v:86:y:1996:i:2:p:213-17

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    References listed on IDEAS

    1. Mariano Tommasi & Andres Velasco, 1996. "Where are we in the political economy of reform?," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 1(2), pages 187-238.
    2. Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, vol. 81(5), pages 1170-1188, December.
    3. Drazen, Allan & Grilli, Vittorio, 1993. "The Benefit of Crises for Economic Reforms," American Economic Review, American Economic Association, vol. 83(3), pages 598-607, June.
    4. Bruno, Michael & Easterly, William, 1998. "Inflation crises and long-run growth," Journal of Monetary Economics, Elsevier, vol. 41(1), pages 3-26, February.
    5. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
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    Cited by:

    1. Allan Drazen, 1997. "Towards a Political-Economic Theory of Domestic Debt," NBER Working Papers 5890, National Bureau of Economic Research, Inc.
    2. Alberto Alesina & Silvia Ardagna & Francesco Trebbi, 2006. "Who Adjusts and When? On the Political Economy of Reforms," NBER Working Papers 12049, National Bureau of Economic Research, Inc.
    3. Serkan Arslanalp & Peter Blair Henry, 2002. "Debt Relief: What Do the Markets Think?," NBER Working Papers 9369, National Bureau of Economic Research, Inc.
    4. Degol Hailu, 2007. "Scaling-up HIV/AIDS Financing and the Role of Macroeconomic Policies in Kenya," Conference Paper 4, International Policy Centre for Inclusive Growth.
    5. Abdul Abiad & Ashoka Mody, 2005. "Financial Reform: What Shakes It? What Shapes It?," American Economic Review, American Economic Association, vol. 95(1), pages 66-88, March.
    6. Serkan Arslanalp & Peter Blair Henry, 2005. "Is Debt Relief Efficient?," Journal of Finance, American Finance Association, vol. 60(2), pages 1017-1051, April.
    7. Andrew T. Young & Jamie Bologna, 2016. "Crises And Government: Some Empirical Evidence," Contemporary Economic Policy, Western Economic Association International, vol. 34(2), pages 234-249, April.
    8. Falvey, Rod & Foster, Neil & Greenaway, David, 2012. "Trade Liberalization, Economic Crises, and Growth," World Development, Elsevier, vol. 40(11), pages 2177-2193.
    9. Englebert, Pierre, 2000. "Solving the Mystery of the AFRICA Dummy," World Development, Elsevier, vol. 28(10), pages 1821-1835, October.
    10. Peter Blair Henry, 2002. "Is Disinflation Good for the Stock Market?," Journal of Finance, American Finance Association, vol. 57(4), pages 1617-1648, August.
    11. Fidrmuc, Jan & Tichit, Ariane, 2013. "How I learned to stop worrying and love the crisis," Economic Systems, Elsevier, vol. 37(4), pages 542-554.
    12. Athanasios Vamvakidis, 2007. "External Debt and Economic Reform; Does a Pain Reliever Delay the Necessary Treatment?," IMF Working Papers 07/50, International Monetary Fund.
    13. Pitlik, Hans & Wirth, Steffen, 2003. "Do crises promote the extent of economic liberalization?: an empirical test," European Journal of Political Economy, Elsevier, vol. 19(3), pages 565-581, September.
    14. Sadia Tahir, 2006. "Core Inflation Measures for Pakistan," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 2, pages 319-342.
    15. Loayza, Norman & Palacios, Luisa, 1997. "Economic reform and progress in Latin America and the Caribbean," Policy Research Working Paper Series 1829, The World Bank.
    16. Agnello, Luca & Castro, Vitor & Jalles, João Tovar & Sousa, Ricardo M., 2015. "What determines the likelihood of structural reforms?," European Journal of Political Economy, Elsevier, vol. 37(C), pages 129-145.
    17. Vítor Castro, 2003. "The Impact of Conflicts of Interest on Inflation Stabilization," NIPE Working Papers 8/2003, NIPE - Universidade do Minho.
    18. O'Reilly, Colin & Powell, Benjamin, 2015. "War and the growth of government," European Journal of Political Economy, Elsevier, vol. 40(PA), pages 31-41.
    19. Henry, Peter B., 2000. "Is Disinflation Good for Growth?," Research Papers 1657, Stanford University, Graduate School of Business.
    20. Sebastian Edwards & Daniel Lederman, 1998. "The Political Economy of Unilateral Trade Liberalization: The Case of Chile," NBER Working Papers 6510, National Bureau of Economic Research, Inc.

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