Political Stabilization Cycles in High Inflation Economies

40 Pages Posted: 20 Apr 2011

See all articles by Ernesto Stein

Ernesto Stein

Inter-American Development Bank (IDB)

Jorge M. Streb

Universidad del CEMA

Date Written: August 1995

Abstract

High inflation economies often do not exhibit smooth inflationary processes, but rather stop-go cycles. This paper relates these stop-go episodes of inflation to a political cycle. The government can try to repress inflation until after the elections in order to increase the chances of being reelected. It is modeled as a two-period game of incomplete information where voters try to pick the most competent government, and inflation can be lowered by the government in the short run through foreign debt accumulation. Several stabilization episodes in Latin America, such as the Primavera Plan in Argentina and the Cruzado and Real Plans in Brazil, are used to illustrate the model.

Suggested Citation

Stein, Ernesto Hugo and Streb, Jorge Miguel, Political Stabilization Cycles in High Inflation Economies (August 1995). IDB Working Paper No. 253, Available at SSRN: https://ssrn.com/abstract=1815937 or http://dx.doi.org/10.2139/ssrn.1815937

Ernesto Hugo Stein (Contact Author)

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue, NW
Research Department
Washington, DC 20577
United States

Jorge Miguel Streb

Universidad del CEMA ( email )

Av. Cordoba 374
Buenos Aires, CABA
Argentina

HOME PAGE: http://www.ucema.edu.ar/u/jms/

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