The Benefits of Crises for Economic Reforms
This paper presents a model in which economic crises have positive effects on welfare. Periods of very high inflation create the incentive for the resolution of social conflict and thus facilitate the introduction of economic reforms and the achievement of higher levels of welfare. Policies to reduce the cost of inflation, such as indexation, raise inflation and delay the adoption of reforms, but have no effect on expected social welfare.
|Date of creation:||Dec 1990|
|Date of revision:|
|Publication status:||published as American Economic Review, vol.83, no.3, June1993.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- Robert J. Barro & David B. Gordon, 1981.
"A Positive Theory of Monetary Policy in a Natural-Rate Model,"
NBER Working Papers
0807, National Bureau of Economic Research, Inc.
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- Alesina, Alberto & Drazen, Allan, 1991.
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American Economic Review,
American Economic Association, vol. 81(5), pages 1170-88, December.
- Stanley Fischer & Lawrence H. Summers, 1989. "Should Nations Learn to Live With Inflation?," NBER Working Papers 2815, National Bureau of Economic Research, Inc.
- Laurence Ball & Stephen G. Cecchetti, 1989. "Wage Indexation and Time-Consistent Monetary Policy," NBER Working Papers 2948, National Bureau of Economic Research, Inc.
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