Propogation of Shocks in a High-Inflation Economy: Israel, 1980-85

24 Pages Posted: 10 Jul 2007 Last revised: 24 Jun 2010

See all articles by Leonardo Leiderman

Leonardo Leiderman

Tel Aviv University - Eitan Berglas School of Economics; Bank of Israel

Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Date Written: August 1986

Abstract

The purpose of this paper is to provide empirical answers to questions related to the propagation of shocks in a high-inflation economy. Do one-time inflationary shocks give rise to long-term persistence, or inertia? Do balance of payments' shocks trigger a process that, through indexation and monetary accommodation, results in long-term changes in inflation? Within the context of a specific hypothesis, influential both in policy discussions and in economic analyses, the paper addresses these issues using Israeli data and vector-autoregression techniques. The evidence does not support the hypothesis that one-time nominal shocks have a persistent effect on the inflation rate, or the hypothesis that long-term changes in inflation are triggered by autonomous fluctuations in the trade balance.

Suggested Citation

Leiderman, Leonardo and Razin, Assaf, Propogation of Shocks in a High-Inflation Economy: Israel, 1980-85 (August 1986). NBER Working Paper No. w2003. Available at SSRN: https://ssrn.com/abstract=344802

Leonardo Leiderman (Contact Author)

Tel Aviv University - Eitan Berglas School of Economics

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel

Bank of Israel

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Jerusalem, 91907
Israel

Assaf Razin

Tel Aviv University - Eitan Berglas School of Economics ( email )

P.O. Box 39040
Ramat Aviv, Tel Aviv, 69978
Israel
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+972 3 640 9908 (Fax)

National Bureau of Economic Research (NBER) ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Germany

HOME PAGE: http://www.CESifo.de

Centre for Economic Policy Research (CEPR)

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United Kingdom

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