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The Political Economy of Failed Stabilization

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Abstract

This paper is an empirical analysis of the likelihood of failure of inflation stabilization programs. Logit models are estimated on a dataset of 39 programs implemented in 10 countries since the late 1950s, in order to determine which economic and political variables affect the probability of failure of stabilizations. Besides the well-known effects of real exchange rate appreciation, decreasing foreign reserves, budget deficits and slower GDP growth, I find that political instability, party fractionalization, less pluralism or democracy (greater autocracy), longer time in office and leftist incumbents also increase the probability of failure of inflation stabilization plans.

Suggested Citation

  • Francisco José Veiga, 2003. "The Political Economy of Failed Stabilization," NIPE Working Papers 13/2003, NIPE - Universidade do Minho.
    • Handle: RePEc:nip:nipewp:13/2003
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    References listed on IDEAS

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    More about this item

    Keywords

    Inflation stabilization; failure; political economy.;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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