Working Paper: NBER ID: w2142
Authors: Eliana A. Cardoso; Rudiger Dornbusch
Abstract: This paper highlights the institutional features of the inflation process and contrasts two stabilization efforts in 1964-66 and in 1986.The inflation process in Brazil is highly institutional. It does not resemble hyperinflations where pricing and wage setting are geared to the exchange rate by the hour, making it possible to stop inflation by simply containing money creation and fixing the exchange rate. The two stabilization programs demonstrate that an incomes policy is an essential ingredient to non-recessionary stabilization. But they also show that demand restraint is inevitable if disinflation is to be viable. The 1964 program was gradualist and two-handed, relying on the supply side on wage repression. The 1986 plan was a heterodox shock treatment centered around an uncompromising price freeze and paying insufficient attention to the need for fiscal restraint.
Keywords: Inflation; Stabilization Programs; Brazil; Economic Policy
JEL Codes: E31; E63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| supply shocks and indexation (E31) | inflation rates (E31) |
| institutional arrangements for wage and price adjustments (E64) | inflation rates (E31) |
| fiscal restraint (E62) | successful disinflation efforts (E31) |
| lagged inflation adjustments (E31) | inflation inertia (E31) |
| shortening of adjustment intervals (F32) | further inflation (E31) |
| insufficient fiscal measures (E62) | inflation outcomes (E31) |
| demand restraint (D10) | inflation control (E64) |
| method of implementation (C90) | outcomes of stabilization efforts (E63) |