From Galloping Inflation to Price Stability in Steps: Israel 1985-2013

18 Pages Posted: 3 Feb 2015

See all articles by Rafi Melnick

Rafi Melnick

Interdisciplinary Center Herzliya

Till Strohsal

Free University of Berlin (FUB) - Division of Economics

Date Written: February 2, 2015

Abstract

After the introduction of a stabilization program Israeli inflation decreased from 400% in 1985 to 2% in 2013. This paper analyzes how the remarkable transition process of Israel’s disinflation took place. We reinforce the existing hypothesis that inflation moved in distinct steps characterized by constant levels with short-lived fluctuations around them. Multiple endogenous breakpoint tests provide strong empirical evidence in favor of our claim. We find that the disinflation process is defined by three clear steps of high, medium and low inflation. The break dates are in line with major economic events that constitute the end and the beginning of each disinflation step.

Keywords: Inflation, Disinflation Steps, Multiple Breakpoint Tests, Inflation Targeting

JEL Classification: E31, E52, E58, C22

Suggested Citation

Melnick, Rafi and Strohsal, Till, From Galloping Inflation to Price Stability in Steps: Israel 1985-2013 (February 2, 2015). Available at SSRN: https://ssrn.com/abstract=2559151 or http://dx.doi.org/10.2139/ssrn.2559151

Rafi Melnick (Contact Author)

Interdisciplinary Center Herzliya ( email )

P.O. Box 167
Herzliya, 46150
Israel

Till Strohsal

Free University of Berlin (FUB) - Division of Economics ( email )

Boltzmannstr. 20
Berlin 14195, 14195
Germany

HOME PAGE: http://www.wiwiss.fu-berlin.de/fachbereich/vwl/nautz/mitarbeiter/Strohsal/index.html

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