Disinflations in Latin America and the Caribbean: A Free Lunch?

Marc Hofstetter

Economics Working Paper Archive from The Johns Hopkins University,Department of Economics

Abstract: This paper challenges the conventional view according to which disinflations in LAC-even from low and moderate peaks-have been carried out at no cost to output. After suggesting a new methodology that allows for long-lived effects and inflation inertia when measuring costs of disinflations, large sacrifice ratios are obtained for the 1970s and 80s. Nevertheless, a new puzzle arises: disinflation costs in the 90s are negative, even with the new methodology. It is shown that an unusual combination of circumstances-i.e. capital inflows, structural reforms and the peculiar recent inflation history-can explain that fortunate result. Moreover, it is shown that LAC episodes exhibit a larger speed than G7 experiences. That speed differential explains why disinflation costs in developed nations are on average larger than LAC�s.

Date: 2004-03
New Economics Papers: this item is included in nep-mon
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Disinflations in Latin America and the Caribbean: A free lunch? (2008)
Working Paper: DISINFLATIONS IN LATIN AMERICA AND THE CARIBBEAN: A FREE LUNCH? (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:jhu:papers:506

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