The Dynamics of Inflation with Constant Deficit under Expected Regime Change

Benjamin Bental and Zvi Eckstein (zeckstein@runi.ac.il)

No 275455, Foerder Institute for Economic Research Working Papers from Tel-Aviv University > Foerder Institute for Economic Research

Abstract: A model that describes the dynamics of inflation with a fully anticipated stabilization program is developed. It is shown that with a constant deficit, an economy tends to stay at the neighborhood of the lower of the two state inflation rates that are compatible with the deficit. Further, increasing inflation rates prior to the stabilization are compatible only with deficits that are lower than the maximal feasible staedy- state deficits, and with a stabilization program that reduces the demand for real balances. If these conditions are not met, inflation decreases towards the stabilization date. It is argued that the data generated by actual inflationary episodes fit the conditions described above and corroborate the model.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 35
Date: 1988-11
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Related works:
Journal Article: The Dynamics of Inflation with Constant Deficit under Expected Regime Change (1990)
Working Paper: THE DYNAMICS OF INFLATION WITH CONSTANT DEFICIT UNDER EXPECTED REGIME CHANGE (1988)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:isfiwp:275455

DOI: 10.22004/ag.econ.275455

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