IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/3896.html

Moderate Inflation

Author

Listed:
  • Rudiger Dornbusch
  • Stanley Fischer

Abstract

Inflation persists at moderate rates of 15-30 percent in all the countries that successfully reduced triple digit inflations in the 1980s. Several other countries, for example Colombia, have experienced moderate inflation for prolonged periods. In this paper we first set out theories of persistent inflation, which can be classified into those emphasizing seigniorage as a source of government finance and those that emphasize the costs of ending inflation. We then examine the sources and persistence of moderate inflation episodes. Most were triggered by commodity price shocks; they were brief; and very few ended in higher inflation. We then present case studies of eight countries, including three that now suffer from moderate inflation, and four that successfully moved down to single digit inflation rates. We examine the roles of seigniorage, indexation and disindexation, the exchange rate commitment, and monetary and fiscal policy. The evidence suggests that seigniorage plays at most a modest role in the persistence of moderate inflations, and that such inflations can be reduced only at a substantial short-term cost to growth.

Suggested Citation

  • Rudiger Dornbusch & Stanley Fischer, 1991. "Moderate Inflation," NBER Working Papers 3896, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:3896
    Note: EFG
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w3896.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Taylor, John B, 1980. "Aggregate Dynamics and Staggered Contracts," Journal of Political Economy, University of Chicago Press, vol. 88(1), pages 1-23, February.
    2. Robert J. Barro, 1983. "Inflationary Finance under Discretion and Rules," Canadian Journal of Economics, Canadian Economics Association, vol. 16(1), pages 1-16, February.
    3. Thomas J. Sargent, 1982. "The Ends of Four Big Inflations," NBER Chapters, in: Inflation: Causes and Effects, pages 41-98, National Bureau of Economic Research, Inc.
    4. International Monetary Fund, 1990. "Industrial Relations and Macroeconomic Performance: An Application to Spain," IMF Working Papers 1990/093, International Monetary Fund.
    5. Rudiger Dornbusch & Stanley Fischer, 1986. "Stopping hyperinflations past and present," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 122(1), pages 1-47, March.
    6. Ball, Laurence, 1991. "The Genesis of Inflation and the Costs of Disinflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(3), pages 439-452, August.
    7. Driffill, John, 1988. "Macroeconomic policy games with incomplete information : A survey," European Economic Review, Elsevier, vol. 32(2-3), pages 533-541, March.
    8. Corbo, Vittorio, 1985. "International Prices, Wages and Inflation in an Open Economy: A Chilean Model," The Review of Economics and Statistics, MIT Press, vol. 67(4), pages 564-573, November.
    9. Corbo, Vittorio & Solimano, Andres, 1991. "Chile's experience with stabilization, revisited," Policy Research Working Paper Series 579, The World Bank.
    10. Rudiger Dornbusch, 1988. "Credibility, Debt and Unemployment: Ireland's Failed Stabilization," NBER Working Papers 2785, National Bureau of Economic Research, Inc.
    11. Blackburn, Keith & Christensen, Michael, 1989. "Monetary Policy and Policy Credibility: Theories and Evidence," Journal of Economic Literature, American Economic Association, vol. 27(1), pages 1-45, March.
    12. Guillermo A. Calvo, 1983. "Staggered Contracts and Exchange Rate Policy," NBER Chapters, in: Exchange Rates and International Macroeconomics, pages 235-258, National Bureau of Economic Research, Inc.
    13. Friedman, Milton, 1971. "Government Revenue from Inflation," Journal of Political Economy, University of Chicago Press, vol. 79(4), pages 846-856, July-Aug..
    14. Bruno, M., 1991. "High Inflation and the Nominal Anchors of an Open Economy," Princeton Studies in International Economics 183, International Economics Section, Departement of Economics Princeton University,.
    15. Albert Fishlow, 1974. "Indexing Brazilian Style: Inflation without Tears?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 5(1), pages 261-282.
    16. James Tobin, 1980. "Stabilization Policy Ten Years After," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(1, Tenth ), pages 19-90.
    17. Rudiger Dornbusch & Ferico Sturzenegger & Holger Wolf, 1990. "Extreme Inflation: Dynamics and Stabilization," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 1-84.
    18. Ball, Laurence, 1994. "Credible Disinflation with Staggered Price-Setting," American Economic Review, American Economic Association, vol. 84(1), pages 282-289, March.
    19. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Akhand Akhtar Hossain, 2009. "Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 12777.
    2. repec:spo:wpmain:info:hdl:2441/4vc7skecu3q7u7s984pi2eaan is not listed on IDEAS
    3. John B. Taylor, 1983. "Rational Expectations Models in Macroeconomics," NBER Working Papers 1224, National Bureau of Economic Research, Inc.
    4. repec:spo:wpecon:info:hdl:2441/4vc7skecu3q7u7s984pi2eaan is not listed on IDEAS
    5. Calvo, Guillermo A. & Vegh, Carlos A., 1999. "Inflation stabilization and bop crises in developing countries," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 24, pages 1531-1614, Elsevier.
    6. Jérôme Sgard, 2010. "Money Reconstructed: Argentina and Brazil after Hyperinflation," Working Papers hal-00972721, HAL.
    7. Boschen, John F. & Weise, Charles L., 2004. "Does the dynamic time consistency model of inflation explain cross-country differences in inflations dynamics?," Journal of International Money and Finance, Elsevier, vol. 23(5), pages 735-759, September.
    8. Emilio Ocampo, 2021. "A Brief History of Hyperinflation in Argentina," CEMA Working Papers: Serie Documentos de Trabajo. 787, Universidad del CEMA.
    9. Drissi, Ramzi & Ghassan, Hassan B., 2018. "Sticky Price versus Sticky Information Price: Empirical Evidence in the New Keynesian Setting," MPRA Paper 93075, University Library of Munich, Germany, revised Apr 2019.
    10. Vittorio Corbo & Stanley Fischer, "undated". "Lessons from the Chilean Stabilization and Recovery," Documentos de Trabajo 158, Instituto de Economia. Pontificia Universidad Católica de Chile..
    11. Buiter, Willem H., 2007. "Seigniorage," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy, vol. 1, pages 1-49.
    12. Ball, Laurence & Gregory Mankiw, N. & Reis, Ricardo, 2005. "Monetary policy for inattentive economies," Journal of Monetary Economics, Elsevier, vol. 52(4), pages 703-725, May.
    13. Slanicay Martin, 2014. "Some Notes on Historical, Theoretical, and Empirical Background of DSGE Models," Review of Economic Perspectives, Sciendo, vol. 14(2), pages 145-164, June.
    14. Jensen, Christian, 2014. "Discretionary policy exploiting learning in a sticky-information model of the inflation-output trade-off: Bridging the gap to commitment," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 150-158.
    15. repec:spo:wpmain:info:hdl:2441/6961 is not listed on IDEAS
    16. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(4), pages 1295-1328.
    17. Ronald Schettkat & Rongrong Sun, 2009. "Monetary policy and European unemployment," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 25(1), pages 94-108, Spring.
    18. Jérôme Sgard, 2010. "Money Reconstructed: Argentina and Brazil after Hyperinflation," Sciences Po Economics Publications (main) hal-00972721, HAL.
    19. Christopher J. Erceg, 1997. "Nominal wage rigidities and the propagation of monetary disturbances," International Finance Discussion Papers 590, Board of Governors of the Federal Reserve System (U.S.).
    20. Ascari, Guido & Rankin, Neil, 2002. "Staggered wages and output dynamics under disinflation," Journal of Economic Dynamics and Control, Elsevier, vol. 26(4), pages 653-680, April.
    21. Mohamed Safouane Ben Aïssa & Olivier Musy, 2011. "The Dynamic Properties Of Alternative Assumptions On Price Adjustment In New Keynesian Models," Bulletin of Economic Research, Wiley Blackwell, vol. 63(4), pages 353-384, October.
    22. Laurence Ball, 1993. "The Dynamics of High Inflation," NBER Working Papers 4578, National Bureau of Economic Research, Inc.
    23. Jérôme Sgard, 1999. "Crise financière, inflation et Currency Board en Bulgarie : les leçons d'une transition indisciplinée," Post-Print hal-03585877, HAL.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:3896. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.