Macroeconomic performance before and after disinflation in Israel
The Israeli stabilization program of 1985 is generally considered one of the most successful such programs in years. Under it, the inflation rate plummeted from about 400 percent a year to about 15-20 percent a year. This paper examines how stabilization affected other key economic variables after 1985. The authors particularly struck by the immediate, abrupt reduction in the rate of inflation and the timing and impact of disinflation on other real variables. For more than two years after the program, a private consumption boom was accompanied by increased economic activity, relatively high real wages and real interest rates, and a low real exchange rate. The recent rise in unemployment seems to reflect the beginning of a process of structural adjustment whereby resources are reallocated across the economy. This process will allow an increase in long term growth after adjustment is completed. In reducing inflation, the program seems to have had the same effectiveness as other shock treatment programs; a sharp and immediate disinflation. In terms of the real costs of disinflation, the program may seem more gradualist. The real costs, in terms of increased unemployment, were postponed for several years and in the transition there was actually a boom in economic activity.
|Date of creation:||30 Nov 1989|
|Date of revision:|
|Contact details of provider:|| Postal: 1818 H Street, N.W., Washington, DC 20433|
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Taylor, John B, 1979. "Staggered Wage Setting in a Macro Model," American Economic Review, American Economic Association, vol. 69(2), pages 108-13, May.
- Rudiger Dornbusch, 1980. "Exchange Rate Rules and Macroeconomic Stability," NBER Working Papers 0473, National Bureau of Economic Research, Inc.
- Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
- Garber, Peter M., 1982.
"Transition from inflation to price stability,"
Carnegie-Rochester Conference Series on Public Policy,
Elsevier, vol. 16(1), pages 11-42, January.
- Helpman, Elhanan, 1988.
"Macroeconomic Effects of Price Controls: The Role of Market Structure,"
Royal Economic Society, vol. 98(391), pages 340-54, June.
- Elhanan Helpman, 1987. "Macroeconomic Effects of Price Controls: The Role of Market Structure," NBER Working Papers 2434, National Bureau of Economic Research, Inc.
- Cukierman, Alex, 1983. "Relative price variability and inflation: A survey and further results," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 19(1), pages 103-157, January.
- Cochrane, John H, 1988. "How Big Is the Random Walk in GNP?," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 893-920, October.
- Helpman, Elhanan & Razin, Assaf, 1987.
"Exchange Rate Management: Intertemporal Tradeoffs,"
American Economic Review,
American Economic Association, vol. 77(1), pages 107-23, March.
When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:311. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi)
If references are entirely missing, you can add them using this form.