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Rampant inflation is a major economic problem in many of the less developed countries; two out of three attempts to stabilize these economies fail. Inflation Stabilization provides a valuable description and a critical analysis of the disinflation programs introduced in Argentina, Bolivia, Brazil, and Israel in 1985-86, and discusses the possibility of such a program in Mexico. It documents the initial steps in stabilization as well as the reasons for failure.As architects of the programs, several of the authors are in key positions to assess which aspects were critical in getting the programs accepted and where to look for difficulties and failures. In Israel, inflation was halted without recession. The challenge to policy makers today is in shifting from stabilization to the revival of sustained growth. This experience is described fully by Michael Bruno and Sylvia Piterman, who examine the critical issue of exchange rates, and by Alex Cukierman, who uses modeling to analyze the interaction of money, wages, prices, and activity under rational expectations that take the government's policy objectives into account.Endemic inflation and a sudden increase in external debt burden Argentina's economy, raising the wider issues of high inflation economies and stabilization that are discussed in the chapter by José Luis Machinea and that by Guido Di Tella and Alfredo Canavese.Eduardo Modiano and Mario Simonsen take up issues of wages in Brazil, particularly the problem of finding an equitable way to deal with a wage freeze; Simonsen develops an ambitious game theoretic rationalization of incomes policy as a coordinating device for imperfectly competitive economies. Bolivia did reach hyperinflation (price increases of more than 50 percent each month) before stabilizing. Juan Antonio Morales shows how stabilizing the exchange rate, in an economy where all pricing was already geared to the dollar, achieved stabilization without a wage or price freeze. And Francisco Gil Diaz asks whether an incomes-policy based program could work to control ever increasing inflation in Mexico.
In recent years, the Federal Reserve and central banks worldwide have enjoyed remarkable success in their battle against inflation. The challenge now confronting the Fed and its counterparts is how to proceed in this newly benign economic environment: Should monetary policy seek to maintain a rate of low-level inflation or eliminate inflation altogether in an effort to attain full price stability? In a seminal article published in 1997, Martin Feldstein developed a framework for calculating the gains in economic welfare that might result from a move from a low level of inflation to full price stability. The present volume extends that analysis, focusing on the likely costs and benefits of achieving price stability not only in the United States, but in Germany, Spain, and the United Kingdom as well. The results show that even small changes in already low inflation rates can have a substantial impact on the economic performance of different countries, and that variations in national tax rules can affect the level of gain from disinflation.
Over the past fifteen years, a significant number of industrialized and middle-income countries have adopted inflation targeting as a framework for monetary policymaking. As the name suggests, in such inflation-targeting regimes, the central bank is responsible for achieving a publicly announced target for the inflation rate. While the objective of controlling inflation enjoys wide support among both academic experts and policymakers, and while the countries that have followed this model have generally experienced good macroeconomic outcomes, many important questions about inflation targeting remain. In Inflation Targeting, a distinguished group of contributors explores the many underexamined dimensions of inflation targeting—its potential, its successes, and its limitations—from both a theoretical and an empirical standpoint, and for both developed and emerging economies. The volume opens with a discussion of the optimal formulation of inflation-targeting policy and continues with a debate about the desirability of such a model for the United States. The concluding chapters discuss the special problems of inflation targeting in emerging markets, including the Czech Republic, Poland, and Hungary.
Controlling inflation is among the most important objectives of economic policy. By maintaining price stability, policy makers are able to reduce uncertainty, improve price-monitoring mechanisms, and facilitate more efficient planning and allocation of resources, thereby raising productivity. This volume focuses on understanding the causes of the Great Inflation of the 1970s and ’80s, which saw rising inflation in many nations, and which propelled interest rates across the developing world into the double digits. In the decades since, the immediate cause of the period’s rise in inflation has been the subject of considerable debate. Among the areas of contention are the role of monetary policy in driving inflation and the implications this had both for policy design and for evaluating the performance of those who set the policy. Here, contributors map monetary policy from the 1960s to the present, shedding light on the ways in which the lessons of the Great Inflation were absorbed and applied to today’s global and increasingly complex economic environment.
The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
This book analyzes the Peruvian and Bolivian macroeconomic experiments. It contrasts the logic of orthodox and heterodox policy, offers an account of the dynamics of hyperinflation and stabilization, explores the explicit and implicit class character, and suggests some lessons for future policy .
Fiscal policy in Latin America has been guided primarily by short-term liquidity targets whose observance was taken as the main exponent of fiscal prudence, with attention focused almost exclusively on the levels of public debt and the cash deficit. Very little attention was paid to the effects of fiscal policy on growth and on macroeconomic volatility over the cycle. Important issues such as the composition of public expenditures (and its effects on growth), the ability of fiscal policy to stabilize cyclical fluctuations, and the currency composition of public debt were largely neglected. As a result, fiscal policy has often amplified cyclical volatility and dampened growth. 'Fiscal Policy, Stabilization, and Growth' explores the conduct of fiscal policy in Latin America and its consequences for macroeconomic stability and long-term growth. In particular, the book highlights the procyclical and anti-investment biases embedded in the region's fiscal policies, explores their causes and macroeconomic consequences, and asesses their possible solutions.
This paper explores how fiscal policy can affect medium- to long-term growth. It identifies the main channels through which fiscal policy can influence growth and distills practical lessons for policymakers. The particular mix of policy measures, however, will depend on country-specific conditions, capacities, and preferences. The paper draws on the Fund’s extensive technical assistance on fiscal reforms as well as several analytical studies, including a novel approach for country studies, a statistical analysis of growth accelerations following fiscal reforms, and simulations of an endogenous growth model.
This paper studies price stabilization policy under both predetermined and flexible exchange rates. Under predetermined exchange rates, a non-credible stabilization program results in an initial expansion of output, followed by a later recession. The initial expansion accompanies an appreciating real exchange rate. Under flexible exchange rates, the recession occurs at the beginning of the program. The real exchange rate appreciates sharply on impact but depreciates afterwards. Lack of credibility is more costly under predetermined exchange rates because the real effects are more pronounced.