The Benefits of Crises for Economic Reforms

Allan Drazen () and Vittorio Grilli

No 3527, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper presents a model in which economic crises have positive effects on welfare. Periods of very high inflation create the incentive for the resolution of social conflict and thus facilitate the introduction of economic reforms and the achievement of higher levels of welfare. Policies to reduce the cost of inflation, such as indexation, raise inflation and delay the adoption of reforms, but have no effect on expected social welfare.

Date: 1990-12
Note: ITI IFM
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Related works:
Working Paper: The Benefits of Crisis for Economic Reforms (1991)
Journal Article: The Benefit of Crises for Economic Reforms (1993)
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