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Moderate inflation

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  • Dornbusch, Rudiger*Fischer, Stanley

Abstract

Inflation persists at moderate rates (15-30 percent) in all the countries that successfully reduced triple-digit inflation in the 1980s. Several other countries--for example, Colombia--have experienced moderate inflation for prolonged periods. The authors introduce types of theories of persistent inflation. Theories emphasizing seigniorage as a source of government finance and those emphasizing the costs of ending inflation were detailed. They examine the sources and persistence of episodes of moderate inflation. Most episodes were triggered by commodity price shocks and were brief. Very few ended in higher inflation. This report presents case studies of eight countries, including three that now suffer from moderate inflation and four that successfully moved down to single-digit inflation rates. The authors analyze the roles of seigniorage, indexation and disindexation, the exchange rate commitment, and monetary and fiscal policy. The evidence suggests that seigniorage plays, at most, a modest role in the persistence of moderate inflation and that such inflation can be reduced only at a substantial short-term cost to growth.

Suggested Citation

  • Dornbusch, Rudiger*Fischer, Stanley, 1991. "Moderate inflation," Policy Research Working Paper Series 807, The World Bank.
  • Handle: RePEc:wbk:wbrwps:807
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    References listed on IDEAS

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    Cited by:

    1. Marco Bonomo & Carlos Carvalho, 2010. "Imperfectly Credible Disinflation under Endogenous Time‐Dependent Pricing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(5), pages 799-831, August.
    2. Sebastian Edwards, 1993. "Exchange Rates, Inflation and Disinflation: Latin American Experiences," NBER Working Papers 4320, National Bureau of Economic Research, Inc.
    3. Roubini, Nouriel & Sala-i-Martin, Xavier, 1995. "A growth model of inflation, tax evasion, and financial repression," Journal of Monetary Economics, Elsevier, vol. 35(2), pages 275-301, April.
    4. Mondino, Guillermo & Sturzenegger, Federico & Tommasi, Mariano, 1996. "Recurrent High Inflation and Stabilization: A Dynamic Game," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 981-996, November.
    5. Sebastian Edwards, 1993. "The Political Economy of Infaliton and Stabilization in Developing Countries," NBER Working Papers 4319, National Bureau of Economic Research, Inc.
    6. Easterly, William R & Mauro, Paolo & Schmidt-Hebbel, Klaus, 1995. "Money Demand and Seigniorage-Maximizing Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 583-603, May.
    7. Costas Karfakis & Demetrios Moschos & Moïse Sidiropoulos, 2004. "Capital mobility and inflation persistence: theory and evidence from Greece," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 9(2), pages 125-133.
    8. Martin Raiser, 1995. "“Transition is a bridge, therefore do not dwell upon it”1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 3(2), pages 215-246, June.
    9. Bonomo, Marco Antônio Cesar & Carvalho, Carlos Viana de, 2003. "Endogenous time-dependent rules and the costs of disinflation with imperfect credibility," FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) 505, EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil).
    10. Giuseppe Diana & Mose Sidiropoulos, 2004. "Central Bank Independence, Speed of Disinflation and the Sacrifice Ratio," Open Economies Review, Springer, vol. 15(4), pages 385-402, October.
    11. Stanley Fischer, 1992. "Macroeconomic Stability and Growth," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 29(87), pages 171-186.
    12. Ziya Onis & Webb, Steven B., 1992. "Political economy of policy reform in Turkey in the 1980s," Policy Research Working Paper Series 1059, The World Bank.
    13. Sebastian Edwards, 1992. "Exchange Rates as Nominal Anchors," NBER Working Papers 4246, National Bureau of Economic Research, Inc.
    14. Andong Zhu & Robert Pollin, 2005. "Inflation and Economic Growth: A Cross-Country Non-linear Analysis," Working Papers wp109, Political Economy Research Institute, University of Massachusetts at Amherst.
    15. Raiser, Martin, 1993. "Governing the transition to a market economy," Kiel Working Papers 592, Kiel Institute for the World Economy (IfW Kiel).
    16. Mr. Joe Crowley, 1997. "The Effects of Forward-Versus Backward-Looking Wage Indexationon Price Stabilization Programs," IMF Working Papers 1997/038, International Monetary Fund.
    17. Cecchetti, Stephen G & Rich, Robert W, 2001. "Structural Estimates of the U.S. Sacrifice Ratio," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(4), pages 416-427, October.
    18. Bonilla, Eugenio Diaz, 2008. "Global macroeconomic developments and poverty:," IFPRI discussion papers 766, International Food Policy Research Institute (IFPRI).
    19. Robert Pollin & James Heintz, 2017. "Expanding Decent Employment in Kenya: The Role of Monetary Policy, Inflation Control, and the Exchange Rate," Research Report 6, International Policy Centre for Inclusive Growth.

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