Moderate Inflation

86 Pages Posted: 20 Apr 2016  

Susmita Dasgupta

World Bank - Development Research Group (DECRG)

David Wheeler

World Bank - Policy Research Department

Ashoka Mody

International Monetary Fund (IMF) - Research Department

Date Written: November 30, 1991

Abstract

Inflation persists at moderate rates (15-30 percent) in all the countries that successfully reduced triple-digit inflation in the 1980s. Several other countries--for example, Colombia--have experienced moderate inflation for prolonged periods. The authors introduce types of theories of persistent inflation. Theories emphasizing seigniorage as a source of government finance and those emphasizing the costs of ending inflation were detailed. They examine the sources and persistence of episodes of moderate inflation. Most episodes were triggered by commodity price shocks and were brief. Very few ended in higher inflation. This report presents case studies of eight countries, including three that now suffer from moderate inflation and four that successfully moved down to single-digit inflation rates. The authors analyze the roles of seigniorage, indexation and disindexation, the exchange rate commitment, and monetary and fiscal policy. The evidence suggests that seigniorage plays, at most, a modest role in the persistence of moderate inflation and that such inflation can be reduced only at a substantial short-term cost to growth.

Keywords: Inflation, Economic Conditions and Volatility, Environmental Economics & Policies, Economic Theory & Research, Banks & Banking Reform

Suggested Citation

Dasgupta, Susmita and Wheeler, David and Mody, Ashoka, Moderate Inflation (November 30, 1991). World Bank Policy Research Working Paper No. 807. Available at SSRN: https://ssrn.com/abstract=620638

Susmita Dasgupta (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-473-2679 (Phone)
202-522-3230 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/sdasgupta

David Wheeler

World Bank - Policy Research Department ( email )

1818 H Street N.W.
Washington, DC 20433
United States

HOME PAGE: http://econ.worldbank.org/staff/dwheeler

Ashoka Mody

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-9617 (Phone)
202-589-9617 (Fax)

HOME PAGE: http://www.amody.com

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