Recurrent High Inflation and Stabilization: A Dynamic Game

Mariano Tommasi, Guillermo Mondino and Federico Sturzenegger

No 10, Working Papers from Universidad de San Andres, Departamento de Economia

Abstract: We analyze the dynamics of inflation that arise from fiscal deficits caused by the noncooperative behavior of interest groups. The "state" variable is the degree of financial adaptation, a proxy for the share of wealth agents hold in alternatives to domestic currency. As financial adaptation becomes widespread, the costs of financing a given budget deficit rise. In this context, there can be fully rational cycles of increasing inflation and financial adaptation, followed by stabilization and remonetization. The model seems applicable to the experi- ence of many Latin American countries

Keywords: inflation; stabilization (search for similar items in EconPapers)
Pages: 16 pages
Date: 1995-10, Revised 1996-11
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Citations: View citations in EconPapers (32)

Published in International Economic Review, November 1996, 37(4): 981-996

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Journal Article: Recurrent High Inflation and Stabilization: A Dynamic Game (1996)
Working Paper: Recurrent High Inflation and Stabilization, A Dynamic Game (1992)
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