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Recurrent High Inflation and Stabilization, A Dynamic Game

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  • Guillermo Mondino

    (UCLA)

  • Federico Sturzenegger

    (University of Chicago)

  • Mariano Tommasi

    (NBER)

Abstract

The authors analyze the dynamics of inflation that arise from fiscal deficits caused by the noncooperative behavior of interest groups. The 'state' variable is the degree of financial adaptation, a proxy for the share of wealth agents hold in alternatives to domestic currency. As financial adaptation becomes widespread, the costs of financing a given budget deficit rise. In this context, there can be fully rational cycles of increasing inflation and financial adaptation, followed by stabilization and remonetization. The model seems applicable to the experience of many Latin American countries. Copyright 1996 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Suggested Citation

  • Guillermo Mondino & Federico Sturzenegger & Mariano Tommasi, 1992. "Recurrent High Inflation and Stabilization, A Dynamic Game," UCLA Economics Working Papers 678, UCLA Department of Economics.
  • Handle: RePEc:cla:uclawp:678
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    1. Casella, Alessandra & Feinstein, Jonathan S, 1990. "Economic Exchange during Hyperinflation," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 1-27, February.
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    5. Alesina, Alberto & Drazen, Allan, 1991. "Why are Stabilizations Delayed," Foerder Institute for Economic Research Working Papers 275509, Tel-Aviv University > Foerder Institute for Economic Research.
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    7. Federico A. Sturzenegger, 1992. "Inflation and Social Welfare in a Model with Endogenous Financial Adaptation," UCLA Economics Working Papers 658, UCLA Department of Economics.
    8. repec:elt:journl:v:58:y:1991:i:229:p:101-137 is not listed on IDEAS
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    13. Hahn, Frank, 1990. "On Inflation," Oxford Review of Economic Policy, Oxford University Press, vol. 6(4), pages 15-25, Winter.
    14. Michael Bruno, 1989. "Israel's Crisis and Economic Reform: A Historical Perspective," NBER Working Papers 3075, National Bureau of Economic Research, Inc.
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    17. Goldfeld, Stephen M. & Sichel, Daniel E., 1990. "The demand for money," Handbook of Monetary Economics,in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 8, pages 299-356 Elsevier.
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