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John R. Commons emphasized the legislative role of governments in wage–labor relations, which instituted collective bargaining for labor organizations. Hence, workers largely abandoned ideas of cooperative production and socialism. This represented an institutional change in the balance power between the working class and industries. The present work discusses the case of the Turkish economy. When wage–labor relations were institutionalized in the 1960s, a strong bond between the working class and the government was established. The institutionalization of the wage–labor relationship gave considerable power to the working class, which in turn influenced government’s economic policies. This was the birth of economic populism. This institutionalization became a major obstacle to economic stability and caused a deep path dependency that resulted in chronic inflation and unstable exchange rates for decades.

Labor productivity growth in Brazil, after showing positive annual rates between 1950 and 1979, became stagnant after 1980. We decompose, calculate and analyze statistical evidence on the Brazilian labor productivity growth in the period 1950–2011, according to “structural change” and “within” components as proposed by McMillan and Rodrik's (2011) methodology. Since it is almost a consensus that the stagnation in the subperiod 1980–1994 is explained by the external debt crisis and chronic inflation rates, we regressed labor productivity growth as well as its two components on several microeconomic and macroeconomic variables in Brazil for the period 1995–2011. The results show that the stagnation of the Brazilian economy in the recent decades is explained by the overvaluation of the Brazilian currency, the reprimarization of the export basket, the low degree of Brazil's trade openness and the high real interest rates prevailing in the period.

This article investigates the role played by Friedman’s interpretation of Brazilian inflation in his 1967 formulation of the natural rate hypothesis and in his 1976 discussion of indexation and other institutional arrangements in the face of chronic inflation. It is argued that, as an empirical economist and in the absence of evidence from industrialized countries, Friedman found in the Brazilian 1964–66 stabilization episode significant support for his argument about inflation acceleration and a shifting Phillips curve. Friedman’s interest in the Brazilian inflationary and growing economy prompted him to visit the country in 1973. The context and implications of Friedman’s Brazilian travel are also tackled in the paper.

This paper highlights the role of external indebtedness and the presence of inflationary inertia in order to assess the effectiveness and sustainability of inflation targeting during disinflation episodes. As the recent Argentinian experience illustrates, a sluggish inflation rate and a significant currentaccount deficit may make the stabilization process difficult. To illustrate the point, we build a model that shows that, when inflation adjusts fast, the target may be achieved without building too much external debt. But if inflation adjusts slowly, an excessive build-up of external debt could lead to an increase in the risk premium, a sudden shortage of foreign exchange, and the eventual collapse of the inflation-targeting regime. Fil: Libman, Emiliano. Centro de Estudios de Estado y Sociedad; Argentina. Universidad Nacional de San Martín; Argentina. Consejo Nacional de Investigaciones Científicas y Técnicas; Argentina Fil: Palazzo, Gabriel Martín. Centro de Estudios de Estado y Sociedad; Argentina. Universidad de Buenos Aires; Argentina. Consejo Nacional de Investigaciones Científicas y Técnicas; Argentina

The process of deterioration in the fundamentals, in particular those related to inflation and the public sector deficits, that had started in the 1980's have accelerated in the 1990's. Meanwhile two way causative relations seem to have appeared between the fluctuations of some fundamentals. In this context, this paper examines the long term relationship between inflation and the public sector deficit and provides an analysis of the macro dynamics that derive from this relationship. Following a summary of the theoretical literature on the relationship between inflation and the public sector deficit, the behavior of these two variables in the 1975-2014 periods are delineated and an analysis of their relationship to some selected macro-variables is presented. The most important result of this article is that high and chronic inflation rates are one of the responsible of deterioration which appeared on the main economic variables particularly in the public sector balance. Similarly, in the 2000’s, on the basis of positive developments in the public balance lies in falling inflation rates quickly and permanently.

Many emerging-market economies have adopted inflation targeting regimes since they were introduced by New Zealand in 1990. Latin America has not been the exception. Currently eight Latin American countries conduct monetary policy through inflation targeting regimes: Brazil, Chile, Colombia, Guatemala, Mexico, Paraguay, Peru, and Uruguay. This paper reviews the history of chronic inflation in Latin America and describes these countries’ experience with inflation targets and their performance during the global financial crisis.

This paper aims to contribute to the literature on the intellectual history of the economics discipline by delving into the history of the the sawtooth wages model, namely: the behavior of periodically-adjusted fixed nominal wages under persistent inflationary conditions. Ranging from the immediate post-War years to the end of the 1960s, our narrative reveals that, prior to Nicholas Kaldor’s statement of the sawtooth model of real wages, other contributions sprung from various traditions. To this effect, we underscore this model’s ancestor in the Operations Research research program and its the early neoclassical version by Bent Hansen (1951). Later analogous representations by Celso Furtado and Nicholas Georgescu-Roegen maintain the model’s legacy until it is fully rehabilitated as workhorse for theoretical and policy analysis, in the 1980s, as the inertial inflation hypothesis gains terrain in the second round of the monetarist-structuralist debate on economic stabilization in Latin America.

This chapter introduces the equilibrium and dynamics of six sticky-price models. Section 7.1 features a model with an IS curve, a Phillips curve, a Taylor monetary policy rule, and inflation rate inertia. Section 7.2 presents a model that has the same equations as Section 7.1, but no inflation rate inertia in the Phillips curve. Section 7.3 is the new Keynesian model with no inflation rate inertia, an IS curve derived from the Euler equation, and a Phillips curve in the manner of Calvo. Section 7.4 presents an encompassing specification that has the Keynesian and new Keynesian models as particular cases. Section 7.5 deals with a model in which the Central Bank controls the growth rate of money according to the Friedman rule, and there is both price-level and inflation-rate inertia. Although no Central Bank in the world adopts this rule, the model has properties that make it appealing for didactic purposes. Section 7.6 presents a Keynesian model for chronic inflation, which is characterized by a monetary policy rule whereas the Central Bank issues money to finance the public deficit.

The paper investigates the role played by Friedman’s interpretation of the Brazilian inflation in his 1967 formulation of the natural rate hypothesis and in his 1976 discussion of indexation and other institutional arrangements in the face of chronic inflation. It is argued that, as an empirical economist and in the absence of evidence from industrialized countries, Friedman found in the Brazilian 1964-66 stabilization episode significant support for his argument about inflation acceleration and a shifting Phillips curve. Friedman’s interest in the Brazilian inflationary economy prompted him to visit the country in 1973. The context and implications of Friedman’s Brazilian travel are also tackled in the paper.

We show that Peru’s chronic inflation through the 1970s and 1980s was the result of the need for inflationary taxation in a regime of fiscal dominance of monetary policy. Hyperinflation occurred when debt accumulation became unavailable, and a populist administration engaged in a counterproductive policy of price controls and loose credit. We interpret the fiscal difficulties preceding the stabilization as a process of social learning to live within the realities of fiscal budget balance. The credibility of the policy regime change in the 1990s may be linked ultimately to the change in public opinion giving proper incentives to politicians, after the traumatic consequences of the hyperstagflation of 1987–1990.

Iran is a country, which has experienced high, and chronic inflation period and fluctuating Exchange rates during past decades. After the revolution in Iran in 1979, followed by eight-year Iran-Iraq war and world oil crises, high inflation has been one of the Iran’s most important problems. Especially during past years boycotts against trade caused instable Exchange rates and high inflation in Iran. These issues attract economists’ interest toward this subject. Therefore, the aim of this study is to analyze the relationship between Exchange rate and inflation based on time series data, using Hendry General to Specific Modeling method and Vector Autoregression (VAR) model. To this end, we used annual data for the period 1976-2012 for Hendry method. We also used the quarterly data between 1997: 3 - 2011: 4 to estimate VAR model. Due to economic instability in recent years and lack of valid data we estimated model up to 2012. As a result of the Hendry model, it is obtained that there is a direct relationship between Exchange rate and inflation. An increase in foreign exchange rates makes the inflation goes up. By including the money supply variable to VAR model the effects of money supply and the exchange rate on inflation has been investigated as well. According to the results, both the money supply and the exchange rate affect the inflation in the positive direction. Contribution of the money supply on inflation is greater than the exchange rate. Keywords: Exchange Rate, inflation, Hendry Method, Time Series, VAR model

É possível partir estritamente de Marx para definir inflação? Em que pese não haver uma definição precisa em suas obras sobre tal fenômeno – até porque, em sua época, este não era uma preocupação econômica relevante – acredita-se que seu método e formulações teóricas são as que melhor possibilitam entender a realidade econômica complexa e seus fatos constitutivos. Não haveria de ser diferente com a inflação, e ela é entendida como o processo pelo qual a moeda legal se desvaloriza e passa a expressar uma quantidade menor de valor. A moeda perde poder de compra e passa adquirir menos produtos por causa dessa corrosão. Isto se reflete num aumento do nível geral de preços. A inflação deve ser entendida por esse prisma, e para trazer uma alternativa à interpretação deste fenômeno, faz-se necessário expor inicialmente a teoria monetária de Marx. Este é o objetivo central da tese: apresentar uma possibilidade de explicação para o fenômeno da variação de preços, sobretudo a inflação, numa perspectiva orgânica e histórica, tendo por base a teoria monetária marxiana. Para tanto, é preciso: i) elucidar a possibilidade de partir da teoria do valor para compreender tal fenômeno, sem abrir mão do rigor e sem capitular à crença de que a teoria de Marx é insuficiente para explicar os fenômenos contemporâneos; ii) apresentar argumentos teóricos que interpretem o processo pelo qual a inflação se transforma de um fenômeno esporádico a um convencional, rotineiro. Trabalha-se com as seguintes hipóteses: a) que o dinheiro no capitalismo é inequivocamente mercadoria, pois só assim os trabalhos privados são socialmente validados e a magnitude do valor pode ser devidamente expressa, e; b) que a inflação se deriva da desvalorização da moeda (meio de circulação) em referência ao dinheiro, logo, acontece por razões fundamentalmente monetárias. Quando este fenômeno ganha contornos irreversíveis e permanentes, ou seja, quando suas condições históricas estão plenamente desenvolvidas, assume sua forma crônica. A conclusão é que a inflação advém de mudanças de tipo-preço, especificamente desproporções monetárias com superavit líquido, em vez de mudanças de tipo-valor, como entende a maioria das interpretações autodenominadas marxistas. Is it possible to start from Marx to define inflation? Although there is no precise definition in his works about such phenomenon – given that, at his time, that was not a relevant economic concern – it is believed that his method and theoretical formulations are the ones that best make possible understanding the complex economic reality and its internal facts. It would not be different with inflation, understood as the process by which the legal tender currency devalues and begins to express a smaller amount of value. The currency loses purchasing power and purchases fewer products because of this corrosion. That is reflected in an increase in general price levels. Inflation must be understood by this prism and, in order to bring an alternative to the interpretation of this phenomenon, it is necessary to expose initially the monetary theory of Marx. That is the main objective of the dissertation, to present a possibility of explanation for the phenomenon of price variation, especially inflation, from an organic and historical perspective, based on Marxian monetary theory. In order to do so, it is necessary to: (i) elucidate the possibility of starting from the theory of value in order to understand this phenomenon, without abandoning rigor and without surrendering to the belief that Marx's theory is insufficient to explain contemporary phenomena; (ii) present theoretical arguments that interpret the process by which inflation is transformed from a sporadic phenomenon to a conventional and routine. We work with the following hypotheses: a) that money in capitalism is commodity, unequivocally, because only then private works are socially validated and the magnitude of value can be duly expressed; b) that inflation derives from the devaluation of the currency (means of circulation) in reference to money, so it happens for fundamentally monetary reasons, and that when this phenomenon gains irreversible and permanent contours, that is, when its historical conditions are fully developed, takes its chronic form. The conclusion is that inflation comes from price-type changes, specifically monetary disproportions with net superavit, rather than value-type changes, as most self-described Marxist interpretations understand it.

The New Keynesian model became the workhorse for the analysis of monetary policy. This framework contains two equations and three variables, inflation, output gap and the nominal rate of interest. To close the model it uses an interest rate rule, such as a Taylor rule, as a monetary policy rule, since most central banks follow the strategy of targeting inflation. In chronic inflation countries, money issue finances the fiscal deficit. In such an environment, the strategy of the central bank is to collect inflation tax from the public and to give the proceeds to the government. Thus, the specification of the monetary policy rule depends on the size of the fiscal deficit financed by money and the policy instrument is not the rate of interest but the rate of growth of money. My main goal in this chapter is to analyze the New Keynesian model under this monetary policy rule. This chapter is organized as follows: Sect. 2 presents the model specification. Section 3 analyzes the dynamical system, its equilibrium and stability. Section 4 provides an empirical assessment of the parameters that determine the model’s properties. Section 5 gives the concluding remarks.

The typical models that try to explain hyperinflation contain three basic ingredients: (1) the portfolio allocation decision with the specification of a money demand equation in which the expected inflation rate is a key argument; (2) a mechanism that describes the expectations formation; and (3) an equation representing the government deficit financing through money issuing. Cagan (1956) took into account the first two ingredients, but considered money as exogenous, while Kalecki (1962) hyperinflation model contained the three ingredients. The current economic literature follows this theoretical framework and has several contributions that analyze the properties of the hyperinflation models. Evans and Yarrow (1981) and Buiter (1987), among others, state that rational models are unable to produce hyperinflationary processes, although they are able to generate hyperdeflationary processes. Kiguel (1989) based on the hypothesis that prices and wages are not flexible, introduced in his model the assumption that the money market does not adjust instantaneously, but according to a partial adjustment mechanism. Having this additional hypothesis, the model with rational expectations is able to generate hyperinflationary processes to some values of the structural parameters of the model.

The paper discusses policy relevant models, going from (1) chronic inflation in the 20th century after WW11, to (2) credit sudden stop that got exacerbated in Developed Market economies after the 2008 Lehman crisis, and appears to be associated with chronic deflation. The discussion highlights the importance of expectations and liquidity, and warns about the risks of relegating liquidity to a secondary role, as has been the practice in mainstream macro models prior to the Great Recession.

This chapter gives an overview of corporate governance in Brazilian banks. The authors start by describing the recent history of the country’s financial system, with an emphasis on the macroeconomic reforms of the mid-1990s, which ended the chronic inflation problem that the country had faced for decades, and had major implications for the functioning of the banking system. They then summarize the most important bank and capital markets regulations and describe the ownership structure of Brazilian banks, as well as board composition, and their implications for corporate governance. They conclude by discussing the recent achievements and the challenges that remain for the future in terms of bank corporate governance in the country, such as increasing bank competition and reducing ownership concentration in banks.

This article investigates Celso Furtado's role in the broad controversy between structuralists and monetarists about inflation and stabilization that took place in Latin America between the mid-1950s and early 1960s. Furtado was the first to relate Latin American chronic inflation to the new growth pattern of the region after the acceleration of the industrialization process in the 1930s. The Brazilian economist criticized the applicability of the monetary approach to the balance of payments to developing countries and put forward an alternative interpretation of the connection between external disequilibrium and inflation. Furtado formulated and tried to implement in 1962–63 the first structuralist stabilization plan—called the Three-Year Plan—in a Latin American country, based on “gradualism” and regarded as an alternative to stabilization policies sponsored by the IMF in the region.

This paper challenges the dominant model which was used to explain the chronic inflation process, as in Latin America in the seventies and eighties. Unlike the usual long term view we present a variant of the Barro and Gordon policy game model which is based on short term considerations in the inflationary period. In the latter period the model implies a random walk and after stabilization the model implies stationarity. Thestatistical tests, using data from Brazil and Israel, do not reject the implications of the model.

This paper aims to contribute to the literature on the intellectual history of the economics discipline in Brazil and its p, in the early 1980s lace within the network of international transmission of economic ideas, by delving into the history of the Kaldor-Pazos-Simonsen mechanism, namely: the behavior of periodically-adjusted fixed nominal wages under persistent inflationary conditions (the sawtooth wages model). Ranging from the immediate post-War years to the end of the 1960s, our narrative reveals that prior to Nicholas Kaldor’s statement of the sawtooth model of real wages, other contributions sprung from various traditions. To this effect, we underline the discoursive appraisal by Celso Furtado (1954) and the early neoclassical model by Bent Hansen (1951), only to fit both of them in a broader historical context of the economics discipline, whereby the emergence of formal mathematical methods allows for the connection between this debate and the Operations Research Program in the North-American universities in the early 1950s.

In response to high and chronic inflation, countries have adopted different stabilization policies. However, the extent to which these stabilization programs were designed for political motives is not clear. Because exchange-rate-based stabilizations (ERBS) create an initial consumption boom followed by a contraction, whereas money-based stabilizations generate a consumption bust followed by a recovery, policymakers may take into account the timing of elections when determining the nominal anchor for stabilization. This paper finds strong evidence that the choice of nominal anchor depends on elections, implying the existence of political opportunism. ERBS are, on average, launched before elections, whereas MBS are set after them. IMF Staff Papers (2007) 54, 385–417. doi:10.1057/palgrave.imfsp.9450008

This study tries to understand how Brazil and Argentina, two countries with chronically high inflation, achieved permanent stabilization by looking at political factors necessary for stabilization. It suggests that, although state autonomy or political unity may contribute to successful price stabilization, reconciling the interests of different stakeholders and thereby building a broad political support base is more essential for stabilization to succeed. Political skills of the leaders and compensatory policies may help raise such support and they are more crucial where other political conditions are less favorable. Also, rapid improvement in the economy is important for sustained political support, and thus, for successful stabilization. Este estudo tenta entender como o Brasil e a Argentina, dois países com inflação cronicamente alta, atingiram a estabilização permanente olhando para os fatores políticas necessários para a estabilização. Sugere-se que, embora a autonomia estatal ou a unidade política possam contribuir para a estabilização bem-sucedida dos preços, reconciliar os interesses de diferentes agentes envolvidos e, assim, construir uma ampla base de apoio político, é mais essencial para a estabilização obter êxito. As habilidades políticas dos líderes e as políticas compensatórias podem ajudar a angariar esse apoio e elas são mais cruciais onde outras condições políticas são menos favoráveis. Além do mais, a melhora rápida na economia é importante para sustentar o apoio político e, assim, para a estabilização bem-sucedida.

This paper try to give a picture of Turkish crisis during 2000-2001 and the reforms were fulfilled after that especially in financial system sector. Survey about experiences such as turkey can have many useful lessons for countries like Iran and other developing countries that have similar conditions. Turkish experience show us in a unstable economic environment that has been characterized by runaway and chronic inflation ; high past through exchange rate; fragility in banking system and heavy fiscal dominance; could implement a structural reforms during a short period and come bake to the right way and reach to the amazing results as soon as possible. [1] The conducted exit strategy in turkey consist of three main channel including 1) fiscal reforms; 2)adoption a sustainable monetary policy based on floating exchange rate and tightening monetary base and 3)finally banking sector restructuring. [2] The consequence of conducted reforms can be shown in slowdown inflation rate and achievement to a stable economic growth. It’s necessary to be mentioned that turkey before 2001 reforms had experienced several efforts to achieve a suitable economic conditions but all of them had failed. The structure of this paper is including: i) in the first section; the conditions before crisis that Turkish economy had be faced with them are drawn. ii) And in the second sector; the main performances were done to pass the crisis especially in the financial sector has been discussed. iii) Finally the lessons taken from Turkish will be explained. Keywords: monetary policy; banking system; inflation targeting [1] The best evidence for this comment can be shown with the trend of inflation during 2002-2004 periods. while in the November of 2000; inflation was 68 percent ;in the end of 2004 this index reached to the 14% [2] The banking restructuring program was initiated in May 2001.

This paper empirically investigates the existence of political business cycles in Tarkey for the 1986-97 period. Turkey presents an interesting case, with high and chronic inflation problems continuing since the mid-1970s. Political surfing and manipulative hypotheses about the behavior of the governments in a parliamentary system are tested by using probit and logit estimation procedures that include the election timing as an endogenous variable. We found that the governments manipulated the economy to increase their chances to be reelected through money supply and government expenditures during the sample period, causing the stabilization programs to loose their credibility and thus the inflation problem to continue.

In the economic literature, the relationship between the growth and inflation has been discussed in different ways with respect to the development stages of the world economy. According to the current view, there is a negative relationship between growth and inflation. This seems to be compatible with the fact that the investments and the economic growth have been negatively affected by the high and chronic inflation rates. Thus, improvement of the long-run growth potential depends on the elimination of the uncertainties that stems from high inflation rates. Developments in commodity, service and financial markets necessitate the countries to perceive the world as a global market. The countries (or provinces in our study now) that appraise this process of decentralizations could improve their living standards economically and socially if and only if they manage inflation well hence the economic cost and social cost both are minimize for sustainable growth in each province.

The paradox is that inflationary finance is supposed to repress money substitutes, while in practice chronic inflation economies introduced indexed money substitutes on a large scale. My explanation is that the regime in the latter economies was probably closer to discretion than to rules. It is shown that under discretion it is optimal to introduce indexed money to protect the liquidity position, in the face of adverse expectations.

This paper examines the intertemporal behaviour in consumption for Turkey which has been experiencing high and chronic inflation since the late 1970s. The Frisch demand system is used to estimate three separate but inextricably intertemporal elasticities: intertemporal price elasticities of demand, commodity-specific intertemporal elasticities, and the intertemporal substitution elasticity of consumption. Our main result is that the Turkish households are reluctant to move their expenditures on non-durable goods from the current period to the next period, regardless of how high nominal interest rates are. This interesting result shows that the consumption behaviour in Turkey has been mainly shaped by uncertainty created by inflationary process and the tendency towards hedging against inflation.

This paper evaluates the inertial inflation hypothesis for Brazil. The hypothesis posits that indexation created a feedback mechanism such that one-time supply shocks were fully transmitted into permanent changes in inflation. A theoretical model is used to show that this outcome is based on the assumption of perfect price flexibility. However, with price stickiness indexation does not produce inertial inflation. The degree of inertia is then compared for two periods: one without indexation (1945–1963), and one with indexation (1969–1985). Finally, vector-autoregressive representations are estimated for the latter period, allowing for price stickiness. The empirical results do not support the hypothesis.

I. INTRODUCTION An extensive literature, mainly drawing from the experience of high-inflation Latin American countries, has identified a characteristic expansionary phase following the adoption of inflation stabilization policies based on an exchange rate commitment (ERBS; see references below). During this phase, output and private consumption growth accelerate, while the real exchange rate appreciates and the current account deteriorates. This work suggests that choosing the exchange rate as the nominal anchor may allow countries to avoid (or at least postpone) the output contraction that typically follows so-called "money-based" stabilization programs.(1) The purpose of this paper is to analyze the experience with ERBS in four moderate-inflation Western European countries to address the question of whether the response of the economy to stabilization policies conforms to that of high-inflation countries. Particularly, we are interested in establishing whether stabilization had an expansionary effect in the short run, and whether stabilization was successful. At the beginning of the 1980s, four Western European countries, Italy, Ireland, Portugal, and Greece, undertook inflation stabilization programs centered around an exchange rate commitment. Ireland and Italy joined the European Monetary System (EMS) at its inception in 1979, thereby committing to a fixed central parity with the European currency unit (ECU). Portugal did not formally join the EMS until April 1992, but the escudo was pegged to a basket of five European currencies after October 1990. Finally, in 1989 the Bank of Greece began to follow a "hard drachma" policy, by which the currency was allowed to depreciate relative to the ECU by less than the full inflation differential; starting in 1995 the target exchange rate for the year was announced publicly. To our knowledge, Ades et al. (1993) is the only other study that seeks to determine whether the typical features of ERBS in high-inflation countries also emerge in industrial countries. Their study focuses on the ERM experience of Denmark, France, and Ireland during 1980-1989, and finds that inflation stabilization was contractionary in France and Ireland, but expansionary in Denmark, where optimistic expectations about the path of disinflation led to small nominal wage increases that, in the event, led to a reduction in real wages and to output expansion. Low nominal and real interest rates, also resulting from optimistic inflation expectations, further contributed to output growth. Our study differs from Ades et al. (1993) in various dimensions: the set of countries is different (except for Ireland), and it includes the four countries with the highest rates of inflation in the European Union at the beginning of the EMS. The period under consideration in our study extends to more recent years, including the ERM crisis of 1992. Also, we offer a more extensive review of the stabilization programs, examining the behavior of the main macroeconomic variables as well as other policy changes that accompanied inflation stabilization. The paper is organized as follows: In the next section, the literature on ERBS is briefly surveyed; section III reviews the stabilization programs in Italy, Ireland, Portugal, and Greece; section IV compares the programs with the ERBS stylized facts; and section V concludes. II. THE LITERATURE ON EXCHANGE RATE-based STABILIZATION A large literature exists on ERBS, focused on the experience of countries plagued by high and chronic inflation (inflation rates above 3040% a year) and by severe macroeconomic instability. These experiences share several elements that set them apart from the prototypical outcome of money-based stabilization in developed countries: after the exchange rate is fixed or an exchange rate target is announced, inflation usually falls regardless of the accompanying policies, but convergence to the inflation rate of the peg currency is slow and incomplete; as a result, the CPI-based real exchange rate appreciates considerably. …

This study presents a socio-economic game of inflation and distributive conflict where inflation is derived from, and stabilization is implemented via, social norms. We apply the `Theory of Social Situations' (Greenberg 1990) to contrast rational choice outcomes predicted by Nash equilibrium vs those derived as social norms under our normative criteria (von Neumann-Morgenstern stability). We then analyze `heterodox' stabilization policies, which seek to address both the economic and sociological criteria for stabilization. Our conclusion is that social pacts constitute a viable normative approach to stabilization because they address the social conflict underlying chronic inflation in order to derive stabilizing norms.

The discussion of the appropriate means to attain external balance arose as a result of the recurring problem of acute shortages of foreign exchange for many small, open, developing economies. Thus, as Findlay (1973) and Diamond (1978) contend, it is now widely held that the critical bottleneck restricting the rate of economic growth in developing countries is the shortage of foreign exchange. The Latin American structuralist school and the Indian strategy of development has long maintained that the limited capacity to import in relation to high and inelastic capital imports requirements has been one of the main factors responsible for the chronic inflation and stagnation in those countries.

This paper studies the sources of high and chronic inflation in Vietnam in recent years using the structural VAR method identified by sign restrictions. The novelty of the paper is that the sign restrictions are drawn from a New Keynesian small open economy DSGE model built and calibrated to the data of Vietnam. Variance decomposition results show that supply shocks and demand shocks seem to explain a large part of inflation over the whole sample period, while the contribution of monetary shocks is much smaller but not negligible. Historical decomposition results show that demand shocks and, to a lesser extent, monetary shocks seem to be the main determinants of inflation in the period 2004Q1-2008Q3, while supply shocks appear to be more important in the period 2008Q1-2010Q4.

This chapter and the next examine the second of the four dimensions that were identified earlier in the book as relevant for understanding the different development paths of East Asia and Latin America, namely, the role of economic policy choices. As noted earlier, governments in East Asia and Latin America have dealt very differently with the two basic macroeconomic constraints that have a bearing on development outcomes. One is fiscal solvency and the management of a generally sound path for the public finances that avoids the excesses of both chronic inflation and public debt problems; the degree to which countries manage this first constraint will determine to a great extent whether they are able to maintain approximate macroeconomic stability, which is a necessary condition for sustained growth and development. The other constraint is external sustainability. This constraint involves the management of a viable balance of payments position over time through export promotion and the encouragement of non-debt-creating capital inflows consistent with a sound public and private debt position. Obviously, these twin macroeconomic constraints or objectives of fiscal solvency and external viability are interrelated, as it is difficult for a country to sustain one without the other. In dealing with these constraints, it is clear that East Asia has been far more successful than Latin America, which is an important reason why the former region has been able to sustain more rapid economic growth and structural change than the latter.

This paper investigates the unique institutional causes of high inflation in the former centrally planned economies (FCPEs) at the Big Bang and in the following restructuring period. From observed empirical evidence, a model is developed to demonstrate that the main causal factor for high inflation was structural distortion rather than monetary overhang. This price distortion caused the price explosion at the Big Bang and then the chronic inflation and fall in output in the following period. The model concludes that, in the period of structural adjustment, inflation is unavoidable unless prices can be more flexible downward. The FCPEs' government should target money growth only to the extent that structural adjustment is just accommodated, so inflation can be kept to a minimum.

This study provides a formal model of the way in which economic institutions lead to chronic or persistent inflation. Of special interest is our focus on the coalition dynamics of inflation-the model is an alternative to dynamic noncooperative models. The results shed new light on the reasons why inflation follows different patterns in seemingly equivalent economies, and provides a new rationale for implementing heterodox policies to stabilize chronic inflation.

Two aspects of the Argentine regional economic structure are presented. The first is the performance of the nation's two principal sectors: the industrial sector and the agricultural sector to shed some light on macroeconomic issues with stress on geographic and regional features. The second aspect to be proved is Argentina's economic recovery since early 1991 and the current economic development policy to prognosticate “feasible regional impacts” of the privatization program on three counts: institutional stability, investment growth and efficiency in resource allocation. After a long period of stagnation, economic isolation and hiper inflation which have plagued the nation, Argentina has made significant progress in the control of the chronic inflation, at present in line with international levels. The capital inflows are also significant as investment has become the basic tool for economic growth. Increases in investment since the implementation of the Convertibility Plan along with the Economic Deregulation and Privatization of Public Entities suggest that capital accumulation is likely to continue. The continuation of drastic fiscal, administrative and social welfare reforms will provide the framework for strengthening both the state and private enterprises in their respective functions and genuine responsabilities of serving the community.

After the 1980s, chronic inflation in Turkey has shaken confidence in the domestic currency, and thus operating debit-credit transactions through dollars. The aim of this paper is to analyse the impact of exchange rate pass-through into inflation in both Turkey and emerging market economies that were highly dollarized and shifted to a flexible exchange rate regime, together with inflation targeting policy in an attempt to switch to the advanced economy. This paper also studies whether stabilization programs under flexible exchange rate regimes and particularly inflation targeting policy may have eliminated dollarization in the periods 1995-2001 and 2002- 2010., Türkiye’de 1980 sonrasında görülen kronik enflasyon ülke parasına olan güvenin azalmasına yol açarak borç alacak ilişkilerinin döviz üzerinden gerçekleşmesine neden olmuştur. Bu çalışmanın amacı güçlü ekonomiye geçiş programı çerçevesinde uygulanan enflasyon hedeflemesi politikası sonucunda geçiş etkisinin, enflasyon üzerinde ne derece belirgin olduğunu saptamaya çalışmaktır. Benzer bir etki, geçmişte dolarizasyon baskısında olan ve daha sonra esnek kur sistemine geçen diğer gelişen piyasa ekonomileri için de incelenecektir. Bu sayede esnek kur sistemi altında uygulanan istikrar politikalarının ve özellikle enflasyon hedeflemesi politikasının dolarizasyon olgusunu azaltıp azaltmadığı anlamaya çalışılacaktır. Sözkonusu çalışma 1995-2001 ve 20022010 olmak üzere iki ayrı dönemi kapsamaktadır

This paper uses a case study of Costa Rica to identify the reasons why democracy is conducive for development. By the mid-twentieth century, Costa Rica had begun to depart from the all-too-common mixture of political instability and economic stagnation characteristic of much of the developing world. This paper claims that this country has benefited from better-than-average public policies, a conclusion based upon an original assessment of policy effectiveness and a major comparative ranking of state policies. It largely rejects the interpretation that uncommon development performance stems from institutions created during the colonial period and instead emphasizes how unending political stalemates gradually made the struggle for power more democratic. A central conclusion of this paper is that political competition-as well as steady economic growth rates and development, more generally-interact with and reinforce each other so that the exercise of power foments rather than retards economic growth.

In this paper, I present a unified and micro-founded explanation for various types of inflation without assuming ad hoc frictions or irrationality. The explanation is similar to the conventional inflation theory in the sense that an independent central bank can control inflation and also similar to the fiscal theory of the price level in the sense that a source of inflation lies in the behavior of government. Inflation accelerates or decelerates through the simultaneous optimization of a government and the representative household if their time preference rates are heterogeneous. This inflation acceleration mechanism will be prevented from working if a central bank is truly independent.

The aim of this study is to analyse past and future sustainability of total public debt in Turkey. The analysis is based on econometric studies and simulations. The data are taken quarterly in order to take into account intra annual effects important in Turkey, given the strong volatility of the economy. The period covered is 1988 to 2002. The econometric analysis rejects the hypothesis of the sustainability of Turkish public debt in the last 15 years. The simulations show that to reach an acceptable level of debt, Turkey has to solve its problem of chronic inflation, stabilize its economy and adopt either a policy freezing public spending or a very active fiscal policy.

This paper explores the contribution and evolution of Persio Arida concept about the stabilization of high and chronic inflation in the brazilian economy. He was an important economist of the team responsible for the formulation of Cruzado Plan and Real Plan. In the beginning, the heterodox stabilization with indexed money was presented as better than others stabilizations alternatives because of two stressed characteristics: the stabilization program would be almost painless and guided by the neutrality principle. However, both the neutrality and almost painless notions will be abandoned in yours reflections after several failed stabilizations in Brazil. Palavras-chave: estabilizacao de precos, inflacao alta e cronica, reforma monetaria com moeda indexada, principio da neutralidade; liquidez excessiva da divida Key-words: price stabilization, chronic and high inflation, monetary reform with indexed money, neutrality principle, excess liquidity debt

In response to high and chronic inflation, countries have adopted different stabilization policies. However, the extent to which these stabilization programs were designed for political motives is not clear. Since exchange-rate-based stabilizations (ERBS) create an initial consumption boom followed by a contraction, whereas money-based stabilizations (MBS) generate a consumption bust followed by a recovery, policymakers may consider the timing of elections when determining the nominal anchor for stabilization. This paper finds strong evidence that the choice of nominal anchor depends on elections, implying the existence of political opportunism. ERBS are, on average, launched before elections while MBS are set after them.

When a government is perceived by its creditors to be potentially insolvent, it is said to have a “debt overhang” – in other words, to have more debt than it can feasibly service. What will happen under these circumstances? In principle, four outcomes are possible. The most obvious one is that creditors may be prepared to forgive and (hopefully) forget the excess debt. However, as we will discuss in more detail in the next chapter, this is not an outcome that is likely to materialize spontaneously as the result of voluntary actions by the government's creditors. Failing some form of organized debt forgiveness, the government can make one of three choices: specifically, it can make a fiscal adjustment by reducing G and/or increasing T , it can accelerate the printing presses (increase Δ M/M ), and/or it can repudiate part or all of its debt. Deficit reduction is seldom costless or easy, so governments are frequently tempted by the two remaining options. This chapter and the next will consider the macroeconomic consequences of choosing each of these options: we will examine the macroeconomic consequences of high inflation in this chapter, and of the nonpayment of debt in Chapter 8. Chapter 6 emphasized the fiscal origin of inflation in emerging economies. The perspective we took there was that a government in fiscal difficulties – that is, one facing prospective insolvency – would be tempted to rely on the central bank for financing, and that this type of financing would tend to be inflationary.

In response to high and chronic inflation, countries have adopted different stabilization policies. However, the extent to which these stabilization programs were designed for political motives is not clear. Since exchange-rate-based stabilizations (ERBS) create an initial consumption boom followed by a contraction, whereas money-based stabilizations (MBS) generate a consumption bust followed by a recovery, policymakers may consider the timing of elections when determining the nominal anchor for stabilization. This paper finds strong evidence that the choice of nominal anchor depends on elections, implying the existence of political opportunism. ERBS are, on average, launched before elections while MBS are set after them.

This paper tries to explain why high inflation levels persist during long periods of time, in several countries affected by chronic inflation, without the necessary corrective measures being implemented. Political models of conflict explain these delays as the result of coordination problems caused by collective choice-making mechanisms. The empirical results of a tobit model estimated over a panel of 10 countries affected by chronic inflation and covering 43 years of observations show that more fragmented political systems and those with a large number of parties represented in the parliament present greater delays of inflation stabilizations. Since higher fragmentation foments conflicts of interest, I conclude that such conflicts are one of the main causes of those delays in chronic inflation countries.

The Bush Administration's policy of sharply cutting taxes while increasing government spending is both misguided and harmful. Presumably rationalized in private as a way of shrinking government over the long term without paying a current political price, it in fact increases the government's distributional intervention by handing money to current voters at the expense of younger and future generations. The Bush policies have increased the future tax increases that are likely to be necessary. In addition, they are likely to require additional Social Security and Medicare cuts that can be seen in large part as negative taxes, refunding some of the positive lifetime net taxes that future retirees will by then have paid. Reducing future negative taxes is a lot like increasing future positive ones. The fiscal gap is largely growth-proof because so much government spending, no less than taxes, is effectively pegged to the size of the economy. This means that we cannot outgrow it in the manner of past wartime national debts. High economic growth would concededly make default on the government's implicit obligations considerably less painful. However, the fiscal gap has the potential significantly to reduce economic growth, for two main reasons. First, it may result in large tax increases on workers to keep benefits flowing to seniors, reducing saving because the workers would have saved more of the transferred funds. Second, it may lead to an Argentina-style meltdown in the U.S. government's position as a borrower in world capital markets, potentially yielding chronic inflation, unemployment, and bank and currency crises that affect our economic productivity for an indefinite period. The Bush Administration's policy of increasing the fiscal gap ought to be reversed as soon as possible, on both the tax and spending sides of the ledger. How this ought to be done is beyond this article's scope, although I have discussed aspects of it elsewhere. Current seniors ought to share in the burden, however, both through tax increases and Social Security and Medicare reform that should take account of differences in people's ability to pay. Unfortunately, policy changes in the near future are more likely to make things worse than better.

When the choice of the nominal anchor and timing of inflation stabilization is analyzed with models of political business cycles, there is room for political opportunism of policymakers. The different business cycles associated with exchange rate-based (ERBS) and money-based stabilizations (MBS) imply that the decision regarding the timing and nominal anchor of stabilization may be affected by the timing of elections. Namely, an opportunistic policymaker is more likely to implement an ERBS than a MBS before elections, while the opposite happens after elections. Empirical results obtained when estimating a multinomial logit model for a sample of 35 stabilization programs implemented in chronic inflation countries clearly support this hypothesis., Fundação para a Ciência e Tecnologia (FCT).

The literature on the end of remarkable inflationary processes (Bresciani-Turroni, 1937; Sargent, 1986) calls our attention to one of the favorable aspects of hyperinflations: the fact that high inflation destroys old debts. Because of the central role fiscal deficits play in chronic inflation, the alleviation of the debt burden helps stabilization, and the fact that a large portion of government debt may disappear without the undesirable reputation costs of explicit debt repudiation is even better. In the Brazilian inflationary experience, most of this potentially favorable effect of high inflation on debt has been neutralized by indexation. In December 1994, officially recognized total federal domestic debt was 19. 9% of GDP. The fast growth of public debt in the first four years of stabilization has offset the benefits of the inflation acceleration, which occurred shortly before the onset of monetary reform in July, 1994. By December 1998, this figure was 44. 8% of GDP.