When Is Stabilization Expansionary? Evidence from High Inflation

Easterly, William; Kollintzas, Tryphon; Viñals, José

doi:10.2307/1344522

Cited by 71 publications

(102 citation statements)

References 44 publications

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“…56 Fischer, Sahay, and Végh (1996, 1997) also find evidence for the transition economies in favor of expansionary stabilizations, with the expansions being more pronounced for the case of exchange rate-based stabilizations. Easterly (1996), however, has argued that expansionary stabilization is a more general feature of stabilization from high inflation countries, and occurs irrespective of whether the nominal anchor is the exchange rate or not. 57 We now proceed to revisit these important issues.…”

Section: B Real Variables In Disinflationmentioning

confidence: 99%

Modern Hyper- and High Inflations

Fischer

Sahay

Végh

2002

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Since 1947, hyperinflations (by Cagan's definition) in market economies have been rare. Much more common have been longer inflationary processes with inflation rates above 100 percent per annum.Based on a sample of 133 countries, and using the 100 percent threshold as the basis for a definition of very high inflation episodes, this paper examines the main characteristics of such inflations. Among other things, we find that (i) close to 20 percent of countries have experienced inflation above 100 percent per annum; (ii) higher inflation tends to be more unstable; (iii) in high inflation countries, the relationship between the fiscal balance and seigniorage is strong both in the short and long-run; (iv) inflation inertia decreases as average inflation rises; (v) high inflation is associated with poor macroeconomic performance; and (vi) stabilizations from high inflation that rely on the exchange rate as the nominal anchor are expansionary.

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Section: B Real Variables In Disinflationmentioning

confidence: 99%

Modern Hyper- and High Inflations

Fischer

Sahay

Végh

2002

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“…The former uses a mechanical rule to define a stabilization episode, whereas the latter uses well-known case studies in the economics literature to determine what can be considered an inflation stabilization plan. Easterly (1996) is a key paper in the mechanical tradition that holds stabilizations to be all episodes for which cross-country data show movement from two years or more of greater than 40 percent annual inflation to two years or more of less than 40 percent annual inflation. Hamann (1999) also advocates the use of mechanical rules defining more flexible criteria in order to determine what constitutes an inflation stabilization attempt.…”

Section: Data Sources and Samplementioning

confidence: 99%

“…Easterly (1996) in a study of a sample of stabilization programs has concluded that they are always expansionary. Kiguel and Liviatan (1992) and Ve´gh (1992) study the business cycles associated with ERBS in countries with chronic inflation, concluding that they differ greatly from those associated with MBS.…”

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confidence: 99%

Money-Based vs. Exchange-Rate-Based Stabilization: Is There Room for Political Opportunism?

Aisen¹

2007

IMF Staff Pap

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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.

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“…In 1974 inflation moved into the high range where it stayed until 1984, averaging 49%. According to the terminology in Easterly (1996), there were two inflation crises during the high inflation period. The first, caused by the domestic response to the international oil crisis, occurred during 1974-75 and was followed by stabilisation in [1977][1978].…”

Section: A Summary Of the History Of Post-war Inflation In Icelandmentioning

confidence: 99%

“…Together with Iceland, Argentina is the only country in Easterly's (1996) sample which today has low inflation. 57 In fact, Argentina has done even better as it has gone from hyperinflation to virtual price stability in the course of just five years, whereas Iceland did not move into the low-inflation range until 1991, eight years after the first stage of disinflation.…”

Section: Argentinamentioning

confidence: 99%

Inflation and Disinflation in Iceland

Andersen¹,

Guðmundsson²

1998

SSRN Journal

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Iceland was a high inflation country from the second half of the seventies and until the middle of the eighties. During the middle of the nineties inflation in Iceland, at less than 2% p.a., was among the lowest in the OECD. In this paper we analyse the roots of high inflation in Iceland and the subsequent disinflation episode. We find that high inflation in Iceland was caused by an increased frequency of external shocks, a tight labour market and a stronger devaluation bias. We further find that disinflation took place in two stages. The first was initiated in 1983 by a policy package of statutory incomes policy and a firmer commitment to exchange rate stability as a response to an inflation crisis. It reduced inflation from the high to the moderate range at negligible cost in terms of output and employment. The second stage took place during the early nineties and reduced annual inflation from the moderate range to below 3%. It involved more fundamental changes in policy priorities and public attitudes than the first stage and is more unique in the international context. It was also more costly in terms of output and employment than the first stage, although the costs seem to have been rather small compared to some other countries. A relatively high degree of real wage flexibility, the use of incomes policy, widespread financial indexation and, above all, a broadly based consensus that the general public was best served by low inflation all contributed to this outcome.

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When Is Stabilization Expansionary? Evidence from High Inflation

Cited by 71 publications

References 44 publications

Modern Hyper- and High Inflations

Modern Hyper- and High Inflations

Money-Based vs. Exchange-Rate-Based Stabilization: Is There Room for Political Opportunism?

Inflation and Disinflation in Iceland

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