Lessons from Experiences with High Inflation

In economies where price control has been the rule, the most serious concern may be recognition of the inflation problem. Beyond the initial correction of subsidies there is the broader issue of the risk of a serious inflation. This article looks at the problem of high inflation in developing countries in Europe and Latin America and draws lessons from historical experience. It analyzes the dynamics of the interaction among deficit finance, institutional innovation in financial markets, dollarization, and the s'hortening of wage contracts in high-inflation situations. When stabilization is undertaken, there is neither immediate, spontaneous resumption of longer adjustment periods for wages and prices nor instant increase of real money demand to noninflationary levels. Incomes policy-freezing exchange rates, wages, and prices-is advocated as an effective supplement to the inevitable budget cut to make up for institutional inertia and facilitate the start of the stabilization process.

[1]  R. Dornbusch,et al.  Extreme Inflation: Dynamics and Stabilization , 1991 .

[2]  S. Fischer,et al.  Stopping hyperinflations past and present , 1986 .

[3]  R. Dornbusch Policies to move from stabilization to growth , 1990 .

[4]  L. Summers,et al.  Proceedings of the World Bank annual conference on development economics 1992 , 1993 .

[5]  The Macroeconomics of Populism in Latin America , 1991 .

[6]  E. Morgan,et al.  The Great Inflation. , 1955 .

[7]  C. V. Gramont Stopping High Inflation , 1991 .

[8]  John Maynard Keynes A Tract on Monetary Reform , 1923 .

[9]  Mohsin S. Khan The monetary dynamics of hyperinflation: A note , 1975 .

[10]  D. Robertson,et al.  The Economics of Inflation. , 1938 .

[11]  F. Coricelli,et al.  Price-Wage Dynamics and Inflation in Socialist Economies: Empirical Models for Hungary and Poland , 1992 .

[12]  S. Fischer,et al.  Lessons of Economic Stabilization and Its Aftermath , 1992 .

[13]  F. Coricelli Stabilization programs in Eastern Europe: a comparative analysis of the Polish and Yugoslav programs of 1990 , 1991 .

[14]  Stanley Fischer,et al.  Issues in socialist economy reform , 1990 .

[15]  R. Dornbusch,et al.  Inflation, debt, and indexation , 1985 .

[16]  F. Modigliani,et al.  Macroeconomics and Finance: Essays in Honor of Franco Modigliani , 1988 .

[17]  John J. Klein,et al.  Studies in the Quantity Theory of Money. , 1956 .

[18]  R. Dornbusch,et al.  Monetary Overhang and Reforms in the 1940s , 1990 .

[19]  Felipe Pazos Chronic inflation in Latin America , 1972 .

[20]  Lucjan T. Orłowski The disintegration of the ruble zone: Driving forces and proposals for policy change , 1993 .