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Money, prices and fiscal lags: a note on the dynamics of inflation

Author

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  • Julio H. G. Olivera

Abstract

The author examines the monetarist-structuralist debate regarding inflation in South America and argues that both positions are limited in their scope. Moreover, the prevailing tendency to rely on a hybrid of the two is not adequate to make up for this limitation. This is because both conceptions tend to underrate, if not to disregard entirely, the part of inertia in the process. While the most familiar source of inflationary inertia is the anticipation of new prices, the more dangerous is built-in inertia arising from objective circumstances. In this regard the author spotlights a specific element of inertia, derived from the fiscal system. Due to a variety of factors, government expenditure generally follows the rise of the price level more rapidly than does government income. Thus, a general price expansion is liable to originate a certain amount of “passive†fiscal deficit. The author explores this hypothesis through a model that is not intended to replace the monetary or structural interpretations or any mixture of the two, but rather seeks to shed light on some interesting and relevant features that have previously escaped scrutiny and may be of use in identifying certain relevant factors.

Suggested Citation

  • Julio H. G. Olivera, 1967. "Money, prices and fiscal lags: a note on the dynamics of inflation," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 20(82), pages 258-267.
  • Handle: RePEc:psl:bnlaqr:1967:34
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    File URL: http://ojs.uniroma1.it/index.php/PSLQuarterlyReview/article/view/11702/11557
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    Citations

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    Cited by:

    1. Matias Vernengo, 2005. "Money and Inflation: A Taxonomy," Working Paper Series, Department of Economics, University of Utah 2005_14, University of Utah, Department of Economics.
    2. Bomfim, Antulio N. & Shah, Anwar, 1991. "Macroeconomic management and the division of powers in Brazil : perspectives for the nineties," Policy Research Working Paper Series 567, The World Bank.
    3. Vegh, Carlos, 1991. "Stopping High Inflation: An Analytical Overview," MPRA Paper 20175, University Library of Munich, Germany.
    4. Roque Fernández, 1989. "Institucionalidad Económica y Estabilidad Política," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 26(78), pages 169-176.
    5. Juan Antonio Morales & Jeffrey Sachs, 1988. "Bolivia's Economic Crisis," NBER Working Papers 2620, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    inflation; South America; fiscal deficit;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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