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Recent “Heterodox” Stabilization Experience: Argentina, Israel and Brazil, 1985–9

In: The Economics of High Inflation

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  • Paul Beckerman

Abstract

Where inflation has been chronic and severe, sharply restrictive monetary and fiscal policies taken alone—“slamming on the brakes”—are likely to engender widespread bankruptcy, recession and unemployment, for several reasons. Firms tend to purchase labor, finance, and other inputs on contract: the inflation expectations implicit in contracts outstanding when a shock occurs will exceed actual inflation following the shock, leaving firms’ real costs high relative to real output prices. Furthermore, monetary stringency may leave aggregate means of payment insufficient to validate outstanding contracts. Firms may respond to such a shock by cutting production, staff, wages, or input purchases. In addition, higher taxes and reduced government expenditures have direct and multiplier effects on economic activity.

Suggested Citation

  • Paul Beckerman, 1992. "Recent “Heterodox” Stabilization Experience: Argentina, Israel and Brazil, 1985–9," Palgrave Macmillan Books, in: The Economics of High Inflation, chapter 9, pages 152-181, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-21713-7_9
    DOI: 10.1007/978-1-349-21713-7_9
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