The Political Economy of Failed Stabilization

Francisco Veiga

No 13/2003, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: This paper is an empirical analysis of the likelihood of failure of inflation stabilization programs. Logit models are estimated on a dataset of 39 programs implemented in 10 countries since the late 1950s, in order to determine which economic and political variables affect the probability of failure of stabilizations. Besides the well-known effects of real exchange rate appreciation, decreasing foreign reserves, budget deficits and slower GDP growth, I find that political instability, party fractionalization, less pluralism or democracy (greater autocracy), longer time in office and leftist incumbents also increase the probability of failure of inflation stabilization plans.

Keywords: Inflation stabilization; failure; political economy. (search for similar items in EconPapers)
JEL-codes: E31 E63 (search for similar items in EconPapers)
Date: 2003
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