High Inflation and the Nominal Anchors of an Open Economy / Michael Bruno.

Format:

Book

Author/Creator:

Bruno, Michael.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w3518.

NBER working paper series no. w3518

Language:

English

Subjects (All):

Inflation (Finance)--Econometric models.

Inflation (Finance).

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1990.

Cambridge, Massachusetts : National Bureau of Economic Research, 1990.

Summary:

A high inflation process is usually due to a real imbalance and cannot be cured without a correction of real furamenta1s. Yet it can be characterized as a quasi-stable nominal process which gets divorced from the real system in what Patinkin could call a valid classical dichotomy. This paper extends the existing seignorage model approach to multiple inflationary equilibria by rationalizing a high inflation equilibrium as well as its stability as the outcomes of sub-optimization by a 'soft' government. It considers the advantages as well as the weaknesses of using the exchange rate as the key nominal anchor in the various stages of stabilization to low (or zero) inflation. Finally the rationale for using multiple nominal anchors is also discussed. Applications of the theoretical arguments are illustrated from recent high inflation and stabilization experience.

Notes:

Print version record

November 1990.