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The Impact of Conflicts of Interest on Inflation Stabilization

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  • Vítor Castro

    () (Universidade de Coimbra and NIPE)

Abstract

This paper tries to explain why high inflation levels persist during long periods of time, in several countries affected by chronic inflation, without the necessary corrective measures being implemented. Political models of conflict explain these delays as the result of coordination problems caused by collective choice-making mechanisms. The empirical results of a tobit model estimated over a panel of 10 countries affected by chronic inflation and covering 43 years of observations show that more fragmented political systems and those with a large number of parties represented in the parliament present greater delays of inflation stabilizations. Since higher fragmentation foments conflicts of interest, I conclude that such conflicts are one of the main causes of those delays in chronic inflation countries.

Suggested Citation

  • Vítor Castro, 2003. "The Impact of Conflicts of Interest on Inflation Stabilization," NIPE Working Papers 8/2003, NIPE - Universidade do Minho.
  • Handle: RePEc:nip:nipewp:8/2003
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Inflation Stabilization; Delays of Stabilizations; Conflicts of Interest; Tobit Model.;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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