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Inflation in Latin America, 1970–1980

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  • J H Cole

    (Department of Economics, Universidad Francisco Marroquín, Zona 10, Guatemala)

Abstract

In explaining the highly varied inflationary experience of sixteen Latin American countries, a simple quantity theory model is shown to be quite robust in the sense that variations in the rate of monetary growth and in the rate of real growth explain practically all of the variation in the rate of inflation. The correlation-causation issue is addressed within the framework of a monetary-base-multiplier model of the determination of monetary growth. It is shown that the larger share of monetary growth in Latin America has been due to changes in the monetary base. Changes in the money multiplier due to changes in reserve requirements were also significant in some cases. It is argued that this evidence, taken jointly with the strong correlation between monetary growth and inflation, implies that the direction of causality runs from money to prices.

Suggested Citation

  • J H Cole, 1986. "Inflation in Latin America, 1970–1980," Environment and Planning C, , vol. 4(1), pages 31-41, March.
    • Handle: RePEc:sae:envirc:v:4:y:1986:i:1:p:31-41
    DOI: 10.1068/c040031
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    References listed on IDEAS

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    1. Anatol Balbach, 1981. "How controllable is money growth," Review, Federal Reserve Bank of St. Louis, vol. 63(Apr), pages 3-12.
    2. Arthur Laffer & David Meiselman, 1975. "The Phenomenon of Worldwide Inflation," Books, American Enterprise Institute, number 725613, September.
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