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Balance of Payments Constraint and Inflation

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  • Matias Vernengo

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Abstract

This paper describes briefly the main alternatives to the dominant neoclassical theories of inflation, according to which inflation is always a monetary phenomenon. The model develops a cost-push approach, in which raising costs are mainly related to external constraints. Distributive conflict inflation is possible, but is not explored, in order to highlight the novelty of the model. Not only inflation is seen as resulting from balance of payments crises, but fiscal crises also are the result of the initial balance of payments crises within this framework. Fiscal deficits, and all other excess demand pressures, are absent, so that high levels of inflation are compatible with an economy that is bellow full employment, and stabilization is independent of fiscal adjustments.

Suggested Citation

  • Matias Vernengo, 2003. "Balance of Payments Constraint and Inflation," Working Paper Series, Department of Economics, University of Utah 2003_06, University of Utah, Department of Economics.
  • Handle: RePEc:uta:papers:2003_06
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    File URL: http://economics.utah.edu/research/publications/2003_06.pdf
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    References listed on IDEAS

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    1. Rowthorn, R E, 1977. "Conflict, Inflation and Money," Cambridge Journal of Economics, Oxford University Press, vol. 1(3), pages 215-239, September.
    2. Garegnani, Pierangelo, 1984. "Value and Distribution in the Classical Economists and Marx," Oxford Economic Papers, Oxford University Press, vol. 36(2), pages 291-325, June.
    3. de Carvalho, Fernando J Cardim, 1993. "Strato-inflation and High Inflation: The Brazilian Experience," Cambridge Journal of Economics, Oxford University Press, vol. 17(1), pages 63-78, March.
    4. Cardoso, Eliana A., 1981. "Food supply and inflation," Journal of Development Economics, Elsevier, vol. 8(3), pages 269-284, June.
    5. Olivera, Julio H G, 1970. "On Passive Money," Journal of Political Economy, University of Chicago Press, vol. 78(4), pages 805-814, Part II J.
    6. Canavese, Alfredo J., 1982. "The structuralist explanation in the theory of inflation," World Development, Elsevier, vol. 10(7), pages 523-529, July.
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    More about this item

    Keywords

    Balance of payments; Inflation;

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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