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From galloping inflation to price stability in steps: Israel 1985-2013

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  • Melnick, Rafi
  • Strohsal, Till

Abstract

After the introduction of a stabilization program Israeli inflation decreased from 400% in 1985 to 2% in 2013. This paper analyzes how the remarkable transition process of Israel's disinflation took place. We reinforce the existing hypothesis that inflationmoved in distinct steps characterized by constant levels with short-lived fluctuations around them. Multiple endogenous breakpoint tests provide strong empirical evidence in favor of our claim. We find that the disinflation process is defined by three clear steps of high, medium and low inflation. The break dates are in line with major economic events that constitute the end and the beginning of each disinflation step.

Suggested Citation

  • Melnick, Rafi & Strohsal, Till, 2015. "From galloping inflation to price stability in steps: Israel 1985-2013," SFB 649 Discussion Papers 2015-009, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2015-009
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    References listed on IDEAS

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    1. Bruno, Michael, 1993. "Crisis, Stabilization, and Economic Reform: Therapy by Consensus," OUP Catalogue, Oxford University Press, number 9780198286639.
    2. Bai, Jushan, 1997. "Estimating Multiple Breaks One at a Time," Econometric Theory, Cambridge University Press, vol. 13(3), pages 315-352, June.
    3. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
    4. Michael Bruno & Guido Di Tella & Rudiger Dornbusch & Stanley Fischer, 1988. "Inflation Stabilization: The Experience of Israel, Argentina, Brazil, Bolivia, and Mexico," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022796, April.
    5. Jushan Bai & Pierre Perron, 2003. "Critical values for multiple structural change tests," Econometrics Journal, Royal Economic Society, vol. 6(1), pages 72-78, June.
    6. Allan Drazen & Elhanan Helpman, 1990. "Inflationary Consequences of Anticipated Macroeconomic Policies," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(1), pages 147-164.
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    Cited by:

    1. Cukierman, Alex & Melnick, Rafi, 2015. "The Conquest of Israeli Inflation and Current Policy Dilemmas," CEPR Discussion Papers 10955, C.E.P.R. Discussion Papers.
    2. Nadine Baudot-Trajtenberg & Edward (Akiva) Offenbacher, 2016. "Inflation measurement and inflation expectations: the case of Israel," BIS Papers chapters, in: Bank for International Settlements (ed.), Inflation mechanisms, expectations and monetary policy, volume 89, pages 205-220, Bank for International Settlements.

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    More about this item

    Keywords

    Inflation; Disinflation Steps; Multiple Breakpoint Tests; Inflation Targeting;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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