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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
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