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Signalling, Wage Controls and Monetary Disinflation Policy

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  • Persson, Torsten
  • van Wijnbergen, Sweder

Abstract

Wage and price controls have a long and somewhat disreputable history, presumably because of their frequent use in many countries as short run substitutes for measure~ with more lasting effects on the inflation rate. But, in 1985 and 1986, Argentina, Brazil, and Israel used extensive wage-price controls as part of more comprehensive disinflation programs, .often labeled "heterodox" stabilization programs. To date, the Israeli stabilization seems to have succeeded, while the Argentinean and Brazilian stabi1izations have clearly ended in failure. This experience raises many questions. One view is that controlling one nominal variable, namely the money supply, is enough to bring down inflation provided that sound fiscal policies are also adopted. Therefore, wage and price controls should be avoided, because of their microeconomic costs. It is clear that controls do have microeconomic costs, but can they also have macroeconomic benefits? Under which circumstances do controls help in bringing down inflation, and when do they just suppress it temporarily? What is the required supporting role of fiscal and monetary policy while they are in place? These are the issues addressed in this paper.
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  • Persson, Torsten & van Wijnbergen, Sweder, 1993. "Signalling, Wage Controls and Monetary Disinflation Policy," Economic Journal, Royal Economic Society, vol. 103(416), pages 79-97, January.
    • Handle: RePEc:ecj:econjl:v:103:y:1993:i:416:p:79-97
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    Cited by:

    1. Agenor, Pierre-Richard, 1995. "Credibility effects of price controls in disinflation programs," Journal of Macroeconomics, Elsevier, vol. 17(1), pages 161-171.
    2. Agenor, Pierre-Richard & Asilis, Carlos M., 1997. "Price controls and electoral cycles," European Journal of Political Economy, Elsevier, vol. 13(1), pages 131-142, February.
    3. Yeşim Gürbüz Beşek, 2011. "Crédibilité en matière de ciblage d'inflation," GIAM Working Papers 11-1, Galatasaray University Economic Research Center.
    4. van Wijnbergen, Sweder, 1988. "Monopolistic competition, credibility and the output costs of disinflation programs An analysis of price controls," Journal of Development Economics, Elsevier, vol. 29(3), pages 375-398, November.
    5. Kiguel, Miguel A. & Liviatan, Nissan, 1990. "Some implications of policy games for high inflation economies," Policy Research Working Paper Series 379, The World Bank.
    6. Rodrik, Dani, 1989. "Promises, Promises: Credible Policy Reform via Signalling," Economic Journal, Royal Economic Society, vol. 99(397), pages 756-772, September.
    7. Kiguel, Miguel A. & Liviatan, Nissan, 1988. "Inflationary rigidities and stabilization policies," Policy Research Working Paper Series 4, The World Bank.
    8. Rodrik, Dani, 1991. "Policy uncertainty and private investment in developing countries," Journal of Development Economics, Elsevier, vol. 36(2), pages 229-242, October.
    9. Calvo, Guillermo & Vegh, Carlos, 1991. "Exchange rate stabilization under imperfect credibility," MPRA Paper 20486, University Library of Munich, Germany.
    10. van Wijnbergen, Sweder, 1991. "Should price reform proceed gradually or in a"big bang?"," Policy Research Working Paper Series 702, The World Bank.
    11. Haaparanta, Pertti, 1990. "Whether to join EMS or not : Signalling and the membership," Research Discussion Papers 9/1990, Bank of Finland.

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