Inflation Stabilization and BOP Crises in Developing Countries

Loading...
Thumbnail Image

Files

ciecrp1.pdf (541.05 KB)
No. of downloads: 6195

Publication or External Link

Date

1999

Advisor

Citation

Calvo, Guillermo A. and Carlos A. Végh, "Inflation Stabilization and BOP Crises in Developing Countries" in Taylor, John B. and Michael Woodford, Eds., Handbook of Macroeconomics, New York: Elsevier, 1999.

DRUM DOI

Abstract

High and persistent inflation has been one of the distinguishing macroeconomic characteristics of many developing countries - particularly in Latin America - since the end of World War II. Pazos (1972) coined the term "chronic inflation" to refer the this phenomenon. In his view, chronic inflation is quite a different creature from the much more spectacular hyperinflations studied by Cagan (1956). First, unlike hyperinflations whose duration is measured in terms of months, chronic inflation may last for decades. Second, countries learn how to live with high and persistent inflation by creating various indexation mechanisms which, in turn, tend to perpetuate the inflationary process. As a result, inflation does not have an inherent propensity to accelerate and, if it does, soon reaches a new plateau.

Notes

Rights