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The inflation - stabilization cycles in Argentina and Brazil

  • Kiguel, Miguel
  • Liviatan, Nissan
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    The Austral plan in Argentina and the Cruzado plan in Brazil were major stabilization attempts with lasting effects on the inflation process in both countries. The purpose of this paper is to understand the reasons that led to the large instability in inflation in both countries, and to explain why neither country succeeded in sustaining a high, but stable rate of inflation. This instability was not accompanied by a noticeable increase in the average rate of inflation. In Argentina inflation was in fact lower on average during the first three years after the Austral plan than in the previous three years, while in Brazil the increase in the average rate of inflation after the Cruzado plan was not dramatic. The paper presents the view that the type of instability that emerged following the failure of the heterodox shocks was a consequence of the large reliance on income policies for stopping inflation in the Austral and Cruzado plans and in the follow-up programs. It was the repeated use of controls accompanied by expectations and anticipations about government actions by firms and works that introduced the observed instability during this period. The paper presents a summary of the process of inflation and gives an in-depth analysis of the inflation - stabilization cycles. It concludes with thoughts about the sustainability of the regime, and the implications of these developments for the design of stabilization programmes in both countries.

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    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 443.

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    Date of creation: 31 Aug 1990
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    Handle: RePEc:wbk:wbrwps:443
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    1. Rudiger Dornbusch & Stanley Fischer, 1986. "Stopping Hyperinflations Past and Present," NBER Working Papers 1810, National Bureau of Economic Research, Inc.
    2. Eliana A. Cardoso & Rudiger Dornbusch, 1987. "Brazil's Tropical Plan," NBER Working Papers 2142, National Bureau of Economic Research, Inc.
    3. Rudiger Dornbusch & Mario Henrique Simonsen, 1987. "Inflation Stabilization with Incomes Policy Support: A Review of the Experience in Argentina, Brazil and Israel," NBER Working Papers 2153, National Bureau of Economic Research, Inc.
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