IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/671.html
   My bibliography  Save this paper

Lessons from the heterodox stabilization programs

Author

Listed:
  • Kiguel, Miguel A.
  • Liviatan, Nissan

Abstract

This paper draws lessons from the advantages and disadvantages of the heterodox stabilization approach in chronic high inflation countries. Heterodox stabilization programs make temporary use of some income policies - price and wage controls - to support orthodox policies. Heterodox programs were successfully tried in two chronic high inflation countries, Israel and Mexico. In both cases these programs were followed by a second, more orthodox stage and included the use of the exchange rate as the nominal anchor. While the programs succeeded, both experienced costs in the form of an appreciation of the real exchange rate and high real interest rates. The main lessons from the experiences as analyzed by the authors are : 1) the initial, rapid reduction in inflation at the beginning of heterodox programs is the easy part; the difficult part is to maintain price stability over time; 2) income policies in heterodox stabilization programs are only justified in high chronic inflation countries (with annual rates of inflation above 100 percent) where inflationary persistence is more pervasive and problematic; 3) there is a case for a larger fiscal adjustment in heterodox programs because of the risk that a government that starts with price controls could be confused with one that tries to achieve price stability without adjusting; and 4) a heterodox program that fails is likely to lead to a large amount of inflation instability.

Suggested Citation

  • Kiguel, Miguel A. & Liviatan, Nissan, 1991. "Lessons from the heterodox stabilization programs," Policy Research Working Paper Series 671, The World Bank.
    • Handle: RePEc:wbk:wbrwps:671
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/1991/05/01/000009265_3961001090830/Rendered/PDF/multi0page.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Heymann, Daniel, 1987. "The Austral Plan," American Economic Review, American Economic Association, vol. 77(2), pages 284-287, May.
    2. Helpman, Elhanan & Leiderman, Leonardo, 1988. "Stabilization in high inflation countries: Analytical foundations and recent experience," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 28(1), pages 9-84, January.
    3. Blejer, Mario I. & Cheasty, Adrienne, 1988. "High inflation, heterodox stabilization, and fiscal policy," World Development, Elsevier, vol. 16(8), pages 867-881, August.
    4. Eliana Cardoso, 1989. "The Macroeconomics of the Brazilian External Debt," NBER Chapters, in: Developing Country Debt and the World Economy, pages 81-100, National Bureau of Economic Research, Inc.
    5. Foxley, Alejandro, 1980. "Stabilization policies and stagflation: The cases of Brazil and Chile," World Development, Elsevier, vol. 8(11), pages 887-912, November.
    6. Rudiger Dornbusch & Mario Henrique Simonsen, 1987. "Inflation Stabilization with Incomes Policy Support: A Review of the Experience in Argentina, Brazil and Israel," NBER Working Papers 2153, National Bureau of Economic Research, Inc.
    7. Kiguel, Miguel A., 1989. "Inflation in Argentina : stop and go since the Austral plan," Policy Research Working Paper Series 162, The World Bank.
    8. Ocampo, José Antonio, 1987. "Una evaluación comparativa de cuatro planes antinflacionarios recientes," El Trimestre Económico, Fondo de Cultura Económica, vol. 0(número es), pages 7-51, septiembr.
    9. Guillermo A. Calvo, 1983. "Staggered Contracts and Exchange Rate Policy," NBER Chapters, in: Exchange Rates and International Macroeconomics, pages 235-258, National Bureau of Economic Research, Inc.
    10. Michael Bruno & Stanley Fischer, 1990. "Seigniorage, Operating Rules, and the High Inflation Trap," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 105(2), pages 353-374.
    11. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
    12. Cardoso, Eliana A & Dornbusch, Rudiger, 1987. "Brazil's Tropical Plan," American Economic Review, American Economic Association, vol. 77(2), pages 288-292, May.
    13. Dornbusch, Rudiger & Edwards, Sebastian, 1990. "Macroeconomic populism," Journal of Development Economics, Elsevier, vol. 32(2), pages 247-277, April.
    14. Malan, Pedro S. & Bonelli, Regis, 1977. "The Brazilian economy in the seventies: Old and new developments," World Development, Elsevier, vol. 5(1-2), pages 19-45.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kiguel, Miguel A. & Liviatan, Nissan, 1989. "The old and the new in heterodox stabilization programs : lessons from the 1960s and the 1980s," Policy Research Working Paper Series 323, The World Bank.
    2. Kiguel, Miguel & Liviatan, Nissan, 1990. "The inflation - stabilization cycles in Argentina and Brazil," Policy Research Working Paper Series 443, The World Bank.
    3. David H. Howard, 1987. "Exchange rate regimes and macroeconomic stabilization in a developing country," International Finance Discussion Papers 314, Board of Governors of the Federal Reserve System (U.S.).
    4. Solimano, Andres, 1989. "Inflation and the costs of stabilization : country experiences, conceptual issues, and policy lessons," Policy Research Working Paper Series 226, The World Bank.
    5. Vegh, Carlos, 1991. "Stopping High Inflation: An Analytical Overview," MPRA Paper 20175, University Library of Munich, Germany.
    6. RUGE-MURCIA, Francisco J., 1997. "Heterodox Inflation Stabilization in Argentina, Brazil, and Israel. A Historical Review and Some Stylized Facts," Cahiers de recherche 9707, Universite de Montreal, Departement de sciences economiques.
    7. Philipp F. M. Baumann & Enzo Rossi & Alexander Volkmann, 2020. "What Drives Inflation and How: Evidence from Additive Mixed Models Selected by cAIC," Papers 2006.06274, arXiv.org, revised Aug 2022.
    8. Helpman, Elhanan & Leiderman, Leonardo, 1990. "Real wages, monetary accommodation, and inflation," European Economic Review, Elsevier, vol. 34(5), pages 897-911, July.
    9. Kiguel, Miguel A. & Liviatan, Nissan, 1988. "Inflationary rigidities and stabilization policies," Policy Research Working Paper Series 4, The World Bank.
    10. Kiguel, Miguel & Liviatan, Nissan, 1990. "The business cycle associated with exchange-rate-based stabilization," Policy Research Working Paper Series 513, The World Bank.
    11. Chadha, Bankim & Tsiddon, Daniel, 1998. "Inflation, nominal interest rates and the variability of output," Journal of Monetary Economics, Elsevier, vol. 42(3), pages 547-573, October.
    12. repec:hal:spmain:info:hdl:2441/6982 is not listed on IDEAS
    13. Eliana Cardoso, 1991. "From Inertia to Megainflation: Brazil in the 1980s," NBER Working Papers 3585, National Bureau of Economic Research, Inc.
    14. Easterly, William R & Mauro, Paolo & Schmidt-Hebbel, Klaus, 1995. "Money Demand and Seigniorage-Maximizing Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 583-603, May.
    15. Calvo, Guillermo A. & Vegh, Carlos A., 1999. "Inflation stabilization and bop crises in developing countries," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 24, pages 1531-1614, Elsevier.
    16. RUGE-MURCIA, Francisco J., 1997. "Credibility and Signaling in Disinflation- a Cross Country Examination," Cahiers de recherche 9712, Universite de Montreal, Departement de sciences economiques.
    17. Winiecki, Jan, 1991. "The Polish transition programme at mid-1991: Stabilisation under threat," Kiel Discussion Papers 174, Kiel Institute for the World Economy (IfW Kiel).
    18. Malaga Butron, Guillermo Roberto Tomas, 2008. "Wages, efficiency and labor market regulation in an inflationary environment," Textos para discussão 13, FGV EESP - Escola de Economia de São Paulo, Fundação Getulio Vargas (Brazil).
    19. repec:spo:wpmain:info:hdl:2441/6982 is not listed on IDEAS
    20. Cukierman, Alex & Lippi, Francesco, 2001. "Labour Markets and Monetary Union: A Strategic Analysis," Economic Journal, Royal Economic Society, vol. 111(473), pages 541-565, July.
    21. Winkler, Bernhard, 2000. "Which kind of transparency? On the need for clarity in monetary policy-making," Working Paper Series 0026, European Central Bank.
    22. Bill Dupor, 2005. "Keynesian Conundrum: Multiplicity and Time Consistent Stabilization," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 154-177, January.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:671. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Roula I. Yazigi (email available below). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.