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Political Stabilization Cycles in High Inflation Economies

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  • Ernesto H. Stein
  • Jorge M. Streb

Abstract

High inflation economies often exhibit stop-go cycles of inflation, rather than smooth inflationary processes. This paper relates these stop-go episodes of inflation to a political cycle: the government can try to repress inflation until after the elections in order to increase the chances of being reelected. This is modeled as a two-period game of incomplete information where voters try to pick the most competent government, and inflation (which signals lack of competency) can be lowered by the government in the short run through foreign debt accumulation. Several stabilization episodes, such as the Primavera Plan in Argentina and the Cruzado Plan in Brazil, are used to motivate the model.

Suggested Citation

  • Ernesto H. Stein & Jorge M. Streb, 1997. "Political Stabilization Cycles in High Inflation Economies," CEMA Working Papers: Serie Documentos de Trabajo. 123, Universidad del CEMA.
  • Handle: RePEc:cem:doctra:123
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    More about this item

    Keywords

    Inflation cycles; elections; political economy.;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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