IDEAS home Printed from
   My bibliography  Save this article

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


  • Julio H. G. Olivera


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," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 20(82), pages 258-267.
  • Handle: RePEc:psl:bnlqrr:1967:34

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Lohmann, Susanne, 1992. "Optimal Commitment in Monetary Policy: Credibility versus Flexibility," American Economic Review, American Economic Association, vol. 82(1), pages 273-286, March.
    2. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
    3. Svensson, Lars E O, 1997. "Optimal Inflation Targets, "Conservative" Central Banks, and Linear Inflation Contracts," American Economic Review, American Economic Association, vol. 87(1), pages 98-114, March.
    4. HEYLEN, Freddy & VAN POECK, André, 1995. "Central bank independence: Only part of the inflation story," SESO Working Papers 1995003, University of Antwerp, Faculty of Applied Economics.
    5. Eijffinger, Sylvester & van Rooij, Maarten & Schaling, Eric, 1996. "Central Bank Independence: A Paneldata Approach," Public Choice, Springer, vol. 89(1-2), pages 163-182, October.
    6. Backus, David & Driffill, John, 1985. "Inflation and Reputation," American Economic Review, American Economic Association, vol. 75(3), pages 530-538, June.
    7. Prast, Henriette M, 1996. "Commitment Rather Than Independence: An Institutional Design for Reducing the Inflationary Bias of Monetary Policy," Kyklos, Wiley Blackwell, vol. 49(3), pages 377-405.
    8. Fischer, Stanley, 1995. "Central-Bank Independence Revisited," American Economic Review, American Economic Association, vol. 85(2), pages 201-206, May.
    9. repec:nbr:nberre:0126 is not listed on IDEAS
    10. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
    11. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
    12. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
    13. Eijffinger, S.C.W., 1993. "Central bank independence in twelve industrial countries," Other publications TiSEM 0401b17a-e2c7-4179-ace9-a, Tilburg University, School of Economics and Management.
    14. Robert J. Shiller, 1997. "Why Do People Dislike Inflation?," NBER Chapters,in: Reducing Inflation: Motivation and Strategy, pages 13-70 National Bureau of Economic Research, Inc.
    15. Ann F. Friedlaender, 1973. "Macro Policy Goals in the Postwar Period: A Study in Revealed Preference," The Quarterly Journal of Economics, Oxford University Press, vol. 87(1), pages 25-43.
    16. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Vegh, Carlos, 1991. "Stopping High Inflation: An Analytical Overview," MPRA Paper 20175, University Library of Munich, Germany.
    2. Juan Antonio Morales & Jeffrey Sachs, 1988. "Bolivia's Economic Crisis," NBER Working Papers 2620, National Bureau of Economic Research, Inc.
    3. 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.
    4. 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.
    5. 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.

    More about this item


    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


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:psl:bnlqrr:1967:34. 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: (Carlo D'Ippoliti). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.