IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

Conflict inflation and delayed stabilization

  • Seghezza, Elena
  • Morelli, Pierluigi

There are numerous political economy approaches to the question of delayed stabilizations. However, all these approaches regard inflation as the unintentional result of the behavior of interest groups. In this paper we take the opposite view, namely, that when there is polarization of financial wealth, inflation is used as a tax to transfer the burden of stabilization onto some interest groups. In countries characterized by financial polarization, stabilization can occur only when there is a change in the political and economic equilibrium, and when parties which represent interest groups adverse to inflation support a new government coalition. The estimates of a Probit model support this hypothesis: the stabilizations after World War I and after the Great Inflation of the 1970s in several European countries showed remarkable political regularities. In fact, generally, these stabilizations occurred when there was a reversal of the political-economic equilibrium and government coalitions including rentiers’ representatives took power.

If you experience problems downloading a file, check if you have the proper application to view it first. 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.

File URL:
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Macroeconomics.

Volume (Year): 39 (2014)
Issue (Month): PA ()
Pages: 171-184

in new window

Handle: RePEc:eee:jmacro:v:39:y:2014:i:pa:p:171-184
Contact details of provider: Web page:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Alesina, A. & Drazen, A., 1991. "Why Are Stabilizations Delayed?," Papers 6-91, Tel Aviv - the Sackler Institute of Economic Studies.
  2. Michael Woodford, 1995. "Price Level Determinacy Without Control of a Monetary Aggregate," NBER Working Papers 5204, National Bureau of Economic Research, Inc.
  3. Calvo, Guillermo A, 1988. "Servicing the Public Debt: The Role of Expectations," American Economic Review, American Economic Association, vol. 78(4), pages 647-61, September.
  4. Erosa, Andres & Ventura, Gustavo, 2002. "On inflation as a regressive consumption tax," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 761-795, May.
  5. A. Javier Hamann, 1999. "Exchange-Rate-Based Stabilization: A Critical Look at the Stylized Facts," IMF Working Papers 99/132, International Monetary Fund.
  6. Vítor Castro & Francisco José Veiga, 2002. "Political Business Cycles and Inflation Stabilization," NIPE Working Papers 9/2002, NIPE - Universidade do Minho.
  7. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-55, December.
  8. Kiguel, Miguel A & Liviatan, Nissan, 1992. "The Business Cycle Associated.with Exchange Rate-Based Stabilizations," World Bank Economic Review, World Bank Group, vol. 6(2), pages 279-305, May.
  9. Rudi Dornbusch, 1996. "Debt and Monetary Policy: The Policy Issues," NBER Working Papers 5573, National Bureau of Economic Research, Inc.
  10. Matthias Doepke & Martin Schneider, 2006. "Aggregate Implications of Wealth Redistribution: The Case of Inflation," UCLA Economics Working Papers 846, UCLA Department of Economics.
  11. Alex Cukierman, 1992. "Central Bank Strategy, Credibility, and Independence: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031981, June.
  12. Michael Bruno & William Easterly, 1995. "Inflation Crises and Long-Run Growth," NBER Working Papers 5209, National Bureau of Economic Research, Inc.
  13. Casella, Alessandra & Eichengreen, Barry, 1994. "Can Foreign Aid Accelerate Stabilization?," CEPR Discussion Papers 961, C.E.P.R. Discussion Papers.
  14. Stefania Albanesi, 2002. "Inflation and Inequality," Macroeconomics 0201002, EconWPA.
  15. Wolff, Edward N, 1979. "The Distributional Effects of the 1969-75 Inflation on Holdings of Household Wealth in the United States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 25(2), pages 195-207, June.
  16. Beetsma, R.M.W.J. & van der Ploeg, F., 1992. "Does inequality cause inflation? : The political economy of inflation, taxation and government debt," Discussion Paper 1992-30, Tilburg University, Center for Economic Research.
  17. Guillermo A. Calvo & Carlos A. Végh, 1994. "Inflation Stabilization And Nominal Anchors," Contemporary Economic Policy, Western Economic Association International, vol. 12(2), pages 35-45, 04.
  18. Perotti, Roberto, 1996. " Growth, Income Distribution, and Democracy: What the Data Say," Journal of Economic Growth, Springer, vol. 1(2), pages 149-87, June.
  19. Edwards, Sebastian, 1989. "The international monetary fund and the developing countries: A critical evaluation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 31(1), pages 7-68, January.
  20. Cukierman, Alex & Webb, Steven B & Neyapti, Bilin, 1992. "Measuring the Independence of Central Banks and Its Effect on Policy Outcomes," World Bank Economic Review, World Bank Group, vol. 6(3), pages 353-98, September.
  21. Carmen M. Reinhart & Kenneth S. Rogoff, 2011. "From Financial Crash to Debt Crisis," American Economic Review, American Economic Association, vol. 101(5), pages 1676-1706, August.
  22. Reinhart, Carmen & Vegh, Carlos, 1994. "Inflation stabilization in chronic inflation countries: The empirical evidence," MPRA Paper 13689, University Library of Munich, Germany.
  23. Hautcoeur, P. C. & Sicsic, P., 1998. "Threat of a capital levy, expected devaluation and interest rates in France during the interwar period," DELTA Working Papers 98-01, DELTA (Ecole normale supérieure).
  24. Acemoglu,Daron & Robinson,James A., 2006. "Economic Origins of Dictatorship and Democracy," Cambridge Books, Cambridge University Press, number 9780521855266, October.
  25. Bach, G L & Stephenson, James B, 1974. "Inflation and the Redistribution of Wealth," The Review of Economics and Statistics, MIT Press, vol. 56(1), pages 1-13, February.
  26. Leeper, Eric M., 1991. "Equilibria under 'active' and 'passive' monetary and fiscal policies," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 129-147, February.
  27. John H. Cochrane, 1998. "Long-term Debt and Optimal Policy in the Fiscal Theory of the Price Level," CRSP working papers 478, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  28. Jeffrey D. Sachs, 1989. "Conditionality, Debt Relief, and the Developing Country Debt Crisis," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 1: The International Financial System, pages 255-296 National Bureau of Economic Research, Inc.
  29. Rudiger Dornbusch, 1985. "Inflation, Exchange Rates and Stabilization," NBER Working Papers 1739, National Bureau of Economic Research, Inc.
  30. Teresa Sbano, 2008. "New historical data for assets and liabilities in the UK," Economic and Labour Market Review, Palgrave Macmillan, vol. 2(4), pages 40-46, April.
  31. Roubini, Nouriel & Sachs, Jeffrey D., 1989. "Political and economic determinants of budget deficits in the industrial democracies," European Economic Review, Elsevier, vol. 33(5), pages 903-933, May.
  32. Drazen, A. & Grilli, V., 1991. "The Benefits of Crisis for Economic Reforms," Papers 27-91, Tel Aviv.
  33. Giovanni B. Pittaluga & Elena Seghezza, 2012. "The role of Rentiers in the stabilization processes of the 1920s," European Review of Economic History, Oxford University Press, vol. 16(2), pages 188-210, May.
  34. Alessandra Casella & Barry Eichengreen, 1991. "Halting Inflation in Italy and France After World War II," NBER Working Papers 3852, National Bureau of Economic Research, Inc.
  35. Dornbusch, Rudiger, 1991. "Credibility and Stabilization," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 837-50, August.
  36. Woodford, Michael, 1994. "Monetary Policy and Price Level Determinacy in a Cash-in-Advance Economy," Economic Theory, Springer, vol. 4(3), pages 345-80.
  37. Sims, Christopher A, 1994. "A Simple Model for Study of the Determination of the Price Level and the Interaction of Monetary and Fiscal Policy," Economic Theory, Springer, vol. 4(3), pages 381-99.
  38. Matthias Doepke & Martin Schneider, 2006. "Inflation and the Redistribution of Nominal Wealth," Journal of Political Economy, University of Chicago Press, vol. 114(6), pages 1069-1097, December.
  39. Beck , Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2009. "Financial institutions and markets across countries and over time - data and analysis," Policy Research Working Paper Series 4943, The World Bank.
  40. Jeffrey D. Sachs, 1989. "Conditionality, Debt Relief, and the Developing Country Debt Crisis," NBER Chapters, in: Developing Country Debt and the World Economy, pages 275-284 National Bureau of Economic Research, Inc.
  41. Prati, Alessandro, 1991. "Poincare's stabilization : Stopping a run on government debt," Journal of Monetary Economics, Elsevier, vol. 27(2), pages 213-239, April.
  42. Eric M. Leeper, 1993. "The policy tango: toward a holistic view of monetary and fiscal effects," Economic Review, Federal Reserve Bank of Atlanta, issue Jul, pages 1-27.
  43. Laban, Raul & Sturzenegger, Federico, 1994. "Fiscal conservatism as a response to the debt crisis," Journal of Development Economics, Elsevier, vol. 45(2), pages 305-324, December.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:jmacro:v:39:y:2014:i:pa:p:171-184. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.