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Political Stabilization Cycles in High Inflation Economies

  • Ernesto Stein and Jorge Streb.

High inflation economies do not always exhibit smooth inflationary processes; sometimes stop-go cycles of inflation are observed. This paper relates these stop-go episodes to a political cycle: Governments can defer inflation until after elections to increase their chances of being reelected. This is modelled as a two-period game of incomplete information where voters try to pick the most competent candidate, and inflation (which is used as a signal of competency) can be lowered by the government in the short run through foreign debt accumulation.

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Paper provided by University of California at Berkeley in its series Center for International and Development Economics Research (CIDER) Working Papers with number C94-039.

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Date of creation: 01 Aug 1994
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Handle: RePEc:ucb:calbcd:c94-039
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  1. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  2. Frankel, Jeffrey A., 1993. "Is Japan Creating a Yen Bloc in East Asia and the Pacific?," Center for International and Development Economics Research (CIDER) Working Papers 233179, University of California-Berkeley, Department of Economics.
  3. Jeffrey A. Frankel and Norbert Funke., 1994. "A Two-Country Analysis of International Targeting of Nominal GNP," Center for International and Development Economics Research (CIDER) Working Papers C94-035, University of California at Berkeley.
  4. Barry Eichengreen and Beth Simmons., 1993. "International Economics and Domestic Politics: Notes on the 1920s," Center for International and Development Economics Research (CIDER) Working Papers C93-029, University of California at Berkeley.
  5. Kiguel, Miguel A & Liviatan, Nissan, 1992. "The Business Cycle Associated.with Exchange Rate-Based Stabilizations," World Bank Economic Review, World Bank Group, vol. 6(2), pages 279-305, May.
  6. Frankel, Jeffrey A., 1994. "The Internalization of Equity Markets: Introduction," Center for International and Development Economics Research (CIDER) Working Papers 233216, University of California-Berkeley, Department of Economics.
  7. Jeffrey A. Frankel., 1994. "The Internationalization of Equity Markets: Introduction," Center for International and Development Economics Research (CIDER) Working Papers C94-033, University of California at Berkeley.
  8. William D. Nordhaus, 1975. "The Political Business Cycle," Review of Economic Studies, Oxford University Press, vol. 42(2), pages 169-190.
  9. Guillermo Calvo & Carlos A. Végh Gramont, 1990. "Credibility and the Dynamics of Stabilization Policy; A Basic Framework," IMF Working Papers 90/110, International Monetary Fund.
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