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Stabilization programs in chronic-inflation countries: Evidence from Latin America

Author

Listed:
  • Palazzo, Gabriel
  • Rapetti, Martin
  • Waldman, Joaquin

Abstract

Chronic inflation has affected Latin America for decades, leading to many stabilization attempts. We develop a novel database with 46 stabilization/disinflation programs across 13 Latin American countries between 1970-2020. We classify them as failures, temporary stabilizations, and lasting stabilizations to study their differences. Our main findings are: 1) programs have failed to stabilize very often; 2) the nominal exchange rate acts as a de facto anchor, decelerating faster than inflation; meaning that the real exchange rate appreciates during stabilization; 3) lasting stabilizations begin with stronger fiscal and balance of payments (BoP) positions; 4) lasting stabilizations are preceded by BoP and fiscal adjustments associated with high GDP contractions; 5) lasting stabilizations keep fiscal accounts balanced for several years after programs are launched; 6) stabilizations typically boost economic growth in the short run; 7) the current account of the BoP worsens during the stabilization process; 8) temporary stabilizations are interrupted by domestic currency depreciations; and 9) many stabilization experiences end up in currency crises despite their success in ending chronic inflation.

Suggested Citation

  • Palazzo, Gabriel & Rapetti, Martin & Waldman, Joaquin, 2025. "Stabilization programs in chronic-inflation countries: Evidence from Latin America," MPRA Paper 123716, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:123716
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    References listed on IDEAS

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    More about this item

    Keywords

    inflation; stabilization programs; Latin America;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • N16 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Latin America; Caribbean

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