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Inflation Stabilization: The Experience of Israel, Argentina, Brazil, Bolivia, and Mexico

Author

Listed:
  • Michael Bruno
  • Guido Di Tella
  • Rudiger Dornbusch
  • Stanley Fischer

    (Bank of Israel)

Abstract

Rampant inflation is a major economic problem in many of the less developed countries; two out of three attempts to stabilize these economies fail. Inflation Stabilization provides a valuable description and a critical analysis of the disinflation programs introduced in Argentina, Bolivia, Brazil, and Israel in 1985-86, and discusses the possibility of such a program in Mexico. It documents the initial steps in stabilization as well as the reasons for failure. As architects of the programs, several of the authors are in key positions to assess which aspects were critical in getting the programs accepted and where to look for difficulties and failures. In Israel, inflation was halted without recession. The challenge to policy makers today is in shifting from stabilization to the revival of sustained growth. This experience is described fully by Michael Bruno and Sylvia Piterman, who examine the critical issue of exchange rates, and by Alex Cukierman, who uses modeling to analyze the interaction of money, wages, prices, and activity under rational expectations that take the government's policy objectives into account. Endemic inflation and a sudden increase in external debt burden Argentina's economy, raising the wider issues of high inflation economies and stabilization that are discussed in the chapter by José Luis Machinea and that by Guido Di Tella and Alfredo Canavese. Eduardo Modiano and Mario Simonsen take up issues of wages in Brazil, particularly the problem of finding an equitable way to deal with a wage freeze; Simonsen develops an ambitious game theoretic rationalization of incomes policy as a coordinating device for imperfectly competitive economies. Bolivia did reach hyperinflation (price increases of more than 50 percent each month) before stabilizing. Juan Antonio Morales shows how stabilizing the exchange rate, in an economy where all pricing was already geared to the dollar, achieved stabilization without a wage or price freeze. And Francisco Gil Diaz asks whether an incomes-policy based program could work to control ever increasing inflation in Mexico.

Suggested Citation

  • Michael Bruno & Guido Di Tella & Rudiger Dornbusch & Stanley Fischer, 1988. "Inflation Stabilization: The Experience of Israel, Argentina, Brazil, Bolivia, and Mexico," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022796, March.
  • Handle: RePEc:mtp:titles:0262022796
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    Citations

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

    1. Carlos A. Végh Gramont, 1991. "Stopping High Inflation; An Analytical Overview," IMF Working Papers 91/107, International Monetary Fund.
    2. Federico Echenique & Alvaro Forteza, 2000. "Are stabilization programs expansionary?," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 15(1), pages 65-89.
    3. Rafi Melnick, 2016. "Measuring Unobserved Expected Inflation," International Finance, Wiley Blackwell, vol. 19(1), pages 2-22, April.
    4. Francisco Joséveiga, 2005. "Does IMF Support Accelerate Inflation Stabilization?," Open Economies Review, Springer, vol. 16(4), pages 321-340, October.
    5. repec:mes:postke:v:39:y:2016:i:3:p:361-386 is not listed on IDEAS
    6. Tornell, Aaron & Velasco, Andres, 1995. "Money-Based Versus Exchange Rate-Based Stabilization with Endogenous Fiscal Policy," Working Papers 95-21, C.V. Starr Center for Applied Economics, New York University.
    7. William Easterly & Paulo Vieira Cunha, 1994. "Financing the storm: macroeconomic crisis in Russia 1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 2(4), pages 443-465, December.
    8. Tornell, Aaron & Velasco, Andres, 1998. "Fiscal discipline and the choice of a nominal anchor in stabilization," Journal of International Economics, Elsevier, vol. 46(1), pages 1-30, October.
    9. Christina D. Romer & David H. Romer, 1997. "Institutions for Monetary Stability," NBER Chapters,in: Reducing Inflation: Motivation and Strategy, pages 307-334 National Bureau of Economic Research, Inc.
    10. Marek Dabrowski, 2014. "Macroeconomic and fiscal challenges faced by the Southern and Eastern Mediterranean region," CASE Network Studies and Analyses 0471, CASE-Center for Social and Economic Research.
    11. Jérôme Sgard, 1999. "Crise financière, inflation et Currency Board en Bulgarie : les leçons d'une transition indisciplinée," Sciences Po publications info:hdl:2441/6961, Sciences Po.
    12. repec:taf:ceasxx:v:45:y:1993:i:2:p:237-257 is not listed on IDEAS
    13. Albert Marcet & Juan P. Nicolini, 2003. "Recurrent Hyperinflations and Learning," American Economic Review, American Economic Association, vol. 93(5), pages 1476-1498, December.
    14. Tornell, Aaron & Velasco, Andres, 1995. "Fiscal discipline and the choice of exchange rate regime," European Economic Review, Elsevier, vol. 39(3-4), pages 759-770, April.
    15. Jose Veiga, Francisco, 1999. "What causes the failure of inflation stabilization plans?," Journal of International Money and Finance, Elsevier, vol. 18(2), pages 169-194, February.
    16. Eduardo Levy-Yeyati, 2011. "Exchange Rate Regimes," Business School Working Papers 2011-02, Universidad Torcuato Di Tella.
    17. Sébastien Charles & Jonathan Marie, 2016. "Hyperinflation in a small open economy with a fixed exchange rate: A post Keynesian view," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 39(3), pages 361-386, July.
    18. Werner, Alejandro M., 1999. "Building consensus for stabilizations," Journal of Development Economics, Elsevier, vol. 59(2), pages 319-336, August.
    19. Jérôme Sgard, 2010. "Money Reconstructed: Argentina and Brazil after Hyperinflation," Working Papers hal-00972721, HAL.
    20. Bleaney, Michael F., 1996. "Macroeconomic stability, investment and growth in developing countries," Journal of Development Economics, Elsevier, vol. 48(2), pages 461-477, March.
    21. Luis Ignacio Jácome, 2015. "Central Banking in Latin America; From the Gold Standard to the Golden Years," IMF Working Papers 15/60, International Monetary Fund.
    22. Rafi Melnick & Till Strohsal, 2015. "From Galloping Inflation to Price Stability in Steps: Israel 1985–2013," SFB 649 Discussion Papers SFB649DP2015-009, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    23. Rafi Melnick & Till Strohsal, 2016. "Disinflation and the Phillips Curve: Israel 1986-2015," SFB 649 Discussion Papers SFB649DP2016-039, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

    More about this item

    Keywords

    inflation stabilization; Israel; Argentina; Brazil; Bolivia; Mexico;

    JEL classification:

    • O0 - Economic Development, Innovation, Technological Change, and Growth - - General

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