Recent “Heterodox” Stabilization Experience: Argentina, Israel and Brazil, 1985–9

Paul Beckerman

Chapter 9 in The Economics of High Inflation, 1992, pp 152-181 from Palgrave Macmillan

Abstract: Abstract Where inflation has been chronic and severe, sharply restrictive monetary and fiscal policies taken alone—“slamming on the brakes”—are likely to engender widespread bankruptcy, recession and unemployment, for several reasons. Firms tend to purchase labor, finance, and other inputs on contract: the inflation expectations implicit in contracts outstanding when a shock occurs will exceed actual inflation following the shock, leaving firms’ real costs high relative to real output prices. Furthermore, monetary stringency may leave aggregate means of payment insufficient to validate outstanding contracts. Firms may respond to such a shock by cutting production, staff, wages, or input purchases. In addition, higher taxes and reduced government expenditures have direct and multiplier effects on economic activity.

Keywords: Exchange Rate; Interest Rate; Monetary Policy; Commercial Bank; Money Demand (search for similar items in EconPapers)
Date: 1992
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-349-21713-7_9

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DOI: 10.1007/978-1-349-21713-7_9

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