High Inflation and the Nominal Anchors of an Open Economy
A high inflation process is usually due to a real imbalance and cannot be cured without a correction of real furamenta1s. Yet it can be characterized as a quasi-stable nominal process which gets divorced from the real system in what Patinkin could call a valid classical dichotomy. This paper extends the existing seignorage model approach to multiple inflationary equilibria by rationalizing a high inflation equilibrium as well as its stability as the outcomes of sub-optimization by a 'soft' government. It considers the advantages as well as the weaknesses of using the exchange rate as the key nominal anchor in the various stages of stabilization to low (or zero) inflation. Finally the rationale for using multiple nominal anchors is also discussed. Applications of the theoretical arguments are illustrated from recent high inflation and stabilization experience.
|Date of creation:||Nov 1990|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Robert J. Barro, 1983.
"Inflationary Finance under Discretion and Rules,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 16(1), pages 1-16, February.
- Robert J. Barro, 1982. "Inflationary Finance under Discrepion and Rules," NBER Working Papers 0889, National Bureau of Economic Research, Inc.
- Rudiger Dornbusch, 1985. "Inflation, Exchange Rates and Stabilization," NBER Working Papers 1739, National Bureau of Economic Research, Inc.
- Bruno, Michael, 1989. "Econometrics and the Design of Economic Reform," Econometrica, Econometric Society, vol. 57(2), pages 275-306, March. Full references (including those not matched with items on IDEAS)