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Recurrent High Inflation and Stabilization: A Dynamic Game

Author

Listed:
  • Mariano Tommasi

    () (Department of Economics, Universidad de San Andres)

  • Guillermo Mondino
  • Federico Sturzenegger

Abstract

We 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 experi- ence of many Latin American countries

Suggested Citation

  • Mariano Tommasi & Guillermo Mondino & Federico Sturzenegger, 1995. "Recurrent High Inflation and Stabilization: A Dynamic Game," Working Papers 10, Universidad de San Andres, Departamento de Economia, revised Nov 1996.
  • Handle: RePEc:sad:wpaper:10
    as

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    References listed on IDEAS

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    1. Federico A. Sturzenegger, 1992. "Inflation and Social Welfare in a Model with Endogenous Financial Adaptation," UCLA Economics Working Papers 658, UCLA Department of Economics.
    2. Dornbusch, Rudiger & Fischer, Stanley, 1993. "Moderate Inflation," World Bank Economic Review, World Bank Group, vol. 7(1), pages 1-44, January.
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    8. Guidotti, Pablo E & Vegh, Carlos A, 1999. "Losing Credibility: The Stabilization Blues," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(1), pages 23-51, February.
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    13. 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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    15. repec:elt:journl:v:58:y:1991:i:229:p:101-137 is not listed on IDEAS
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    Keywords

    inflation; stabilization;

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