The Impact of Conflicts of Interest on Inflation Stabilization

Universidade do Minho NIPE Working Paper No. 8/2003

36 Pages Posted: 19 Sep 2003  

Vitor Castroa

Universidade de Coimbra - Faculty of Economics

Abstract

This paper tries to explain why high inflation levels persist during long periods of time, in several countries affected by chronic inflation, without the necessary corrective measures being implemented. Political models of conflict explain these delays as the result of coordination problems caused by collective choice-making mechanisms. The empirical results of a tobit model estimated over a panel of 10 countries affected by chronic inflation and covering 43 years of observations show that more fragmented political systems and those with a large number of parties represented in the parliament present greater delays of inflation stabilizations. Since higher fragmentation foments conflicts of interest, I conclude that such conflicts are one of the main causes of those delays in chronic inflation countries.

Keywords: Inflation Stabilization, Delays of Stabilizations, Conflicts of Interest, Tobit Model

JEL Classification: E31, E63

Suggested Citation

Castroa, Vitor, The Impact of Conflicts of Interest on Inflation Stabilization. Universidade do Minho NIPE Working Paper No. 8/2003. Available at SSRN: https://ssrn.com/abstract=439300 or http://dx.doi.org/10.2139/ssrn.439300

Vitor Manuel Alves Castro (Contact Author)

Universidade de Coimbra - Faculty of Economics ( email )

Av. Dias da Silva, 165
Coimbra, 3004-512
Portugal
+351-239790526 (Phone)
+351-239403511 (Fax)

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