Inflation, price controls, and fiscal adjustment in Zimbabwe

Inflation always has a monetary dimension, but managing inflation is not a simple question of monetary management. Other factors to contend with are the indexation process (including policies on wage and price controls), the level and financial composition of fiscal deficits, and supply conditions. How these interact has crucial implications for policy design.Economic Theory&Research,Environmental Economics&Policies,Economic Stabilization,Access to Markets,Markets and Market Access

Monetary policy during transition : an overview

In this paper, the authors examine monetary policy in 26 transition economies in Central and Eastern Europe (CEE) and the Former Soviet Union (FSU) between 1989-1994. They provide a schema for classifying the use of 6 important monetary policy instruments, both direct and indirect, and suggest criteria for defining market-oriented use of these instruments. They assess the extent of market-oriented instruments use during the period under review and around stabilization. The impact of instrument use on inflation and financial depth, which declined dramatically during the transition's early years, is also explored. The authors indicate several clear patterns. Among them, by the end of 1994, slightly less than half the countries were relying primarily on market-oriented forms of monetary instruments and had moderate or low reliance on such instruments. Countries quickly formulating a monetary policy response were more likely to switch to market-oriented instruments. Second, CEE countries moved more rapidly than FSU countries towards these forms, even when stage of stabilization is controlled for. Third, using credit ceilings appeared helpful in the year of stabilization, especially in CEE countries; the elimination of these controls was associated with effective stabilization. The authors conclude that monetary stability goes hand in hand with adjustment in the real sectors. Generally, the relatively weak link between market orientation of instruments and indicat effective suggests thst inflation control and financial depth are more directly related to policy stance, which is in turn related to broader structural reforms.Payment Systems&Infrastructure,Economic Theory&Research,Fiscal&Monetary Policy,Environmental Economics&Policies,Banks&Banking Reform,Macroeconomic Management,Environmental Economics&Policies,Banks&Banking Reform,Economic Stabilization,Economic Theory&Research

Israel's stabilization program

In order to combat inflation, Israel launched a stabilization program in July 1985 which resulted in inflation decreasing to a low 20 percent annually as compared with more than 400 percent in 1984. What contributed to this decline? This paper attempts to analyze the major factors which made the transition to low inflation possible. It deals with such issues as the role of U.S. aid and of domestic fiscal adjustment, of monetary and exchange rate policies and of the change in the rules of the game concerning government-labor interactions. The paper focuses on the evaluation of the stabilization program from the 1987 perspective and examines the evolution of the disinflationary policies in the course of the program. Although Israel has obviously made strides in correcting inflation, several problems remain for the economy. The final section of the paper deals with these issues and the policy dilemmas which face the government.Economic Stabilization,Economic Theory&Research,Environmental Economics&Policies,Financial Intermediation,Fiscal&Monetary Policy

Comparing constraints to economic stabilization in Macedonia and Slovakia: macro estimates with micro narratives

This paper re-emphasizes the link from structural policies to enhanced macroeconomic stabilization using a small structural model estimated on quarterly data for Macedonia and Slovakia over 1995-2007. The success of macroeconomic stabilization, typically in the hands of monetary policy, is not only determined by a suitable choice of the nominal anchor, which shapes the reaction function of monetary policy, but also the constraints within which the monetary policy strives to achieve its objectives. The key attributes of the constraints to macroeconomic stabilization are economic rigidities and structural shocks. By benchmarking the estimated economic rigidities and structural shocks faced by Macedonia to those faced by Slovakia, the authors find that Macedonia has relatively weaker transmission mechanisms of monetary policy, higher output rigidity, and a lower exchange rate pass-through, and faces larger external shocks. For Macedonia, these relatively higher constraints on monetary policy together with the chosen exchange rate anchor result in greater output and inflation volatility relative to Slovakia. Hence, it appears that small, open economies with stronger economic rigidities should apply monetary policy regimes that allow for more flexible adjustments in external relative prices to enhance their macroeconomic stability.Currencies and Exchange Rates,Economic Theory&Research,Debt Markets,Economic Stabilization,Emerging Markets

Inflation and the costs of stabilization : country experiences, conceptual issues, and policy lessons

The macroeconomic effects and the actual costs of different anti-inflationary programs is a subject of great importance for the design of stabilization policies. This paper reviews several historical anti-inflationary programs and some of the recent past. The purpose of the paper is to help understand current difficulties with stabilization, especially in Latin America. The emphasis of each experience reviewed is on the cost of stabilization and the role played by fiscal reform, the availability of foreign resources, the stabilization of the exchange rate and the distributive conflict, relating to the success or failure of the particular anti-inflationary program studied. In addition special attention is given to the existing controversies on the causes and cures of inflation in the literature on stabilization.Economic Stabilization,Environmental Economics&Policies,Economic Theory&Research,Fiscal&Monetary Policy,Banks&Banking Reform

Inflationary rigidities and stabilization policies

Latin American countries provide the best living laboratory to study inflationary processes and stabilization programs. The purpose of this paper is to analyze the experience with orthodox stabilization policies, which are based on a tight fiscal stance and not supported by a system of price controls. The analysis of these policies is structured as follows. Part I analyzes in detail the question of why purely orthodox policies were especially effective in stopping hyperinflation as opposed to chronic inflation processes. Part II turns to chronic inflation countries and analyzes three basic types of stabilization. The first type is based almost exclusively on fiscal adjustment. The second considers programs which employ nominal anchors in conjunction with fiscal adjustments. The third type examines the exchange rate based stabilizations which often evolve out of a monetary-fiscal package. In the final part of the paper, the authors consider the long run view which extends beyond specific programs and emphasizes the importance of persistence in fiscal discipline and in adherence to nominal anchors.Environmental Economics&Policies,Inflation,Banks&Banking Reform,Economic Stabilization,Economic Theory&Research

Central Bank and Price Stability: Is a Single Objetive Enough?

Current developments in monetary theory, coupled with the recent practical experience of many and diverse central banks, suggest a number of basic tenets that could be regarded as effective guideposts in the search for successful practices that could contribute to attain and to sustain macroeconomic stabilization. While common sense, the myriad of accompanying circumstances within which policies and institutions develop, tend to confound their significance and to blur their basic meaning and implications. The purpose of this paper is to review and revisit, in the light of prevailing experience, the state of the art regarding monetary and central banking policies and analyze, by outlining these experiences in the form of seven basic principles, their significance for the achievement and the maintenance of macroeconomic stabilization. While each of these principles can be reviewed independently, they are, of course closely linked. The paper first scrutinizes the manner in which the literature has dealt with these issues and, in light of recent experiences, attempts to integrate them into an unified framework and to draw a number of policy lessons and theoretical implications.

"Reporting of Two or More Races in the 1999 American Community Survey"

This paper investigates the causes of western Germany's remarkably poor performance since 1992. The paper challenges the view that the poor record of the nineties, particularly the marked deterioration in public finances since unification, might be largely attributable to unification. Instead, the analysis highlights the role of ill-timed and overly ambitious fiscal consolidation in conjunction with tight monetary policies of an exceptional length and degree. The issue of fiscal sustainability and Germany's fiscal and monetary policies are assessed both in the light of economic theory and in comparison to the best practices of other more successful countries. The analysis concludes that Germany's dismal record of the nineties must not be seen as a direct and apparently inevitable result of unification. Rather, the record arose as a perfectly unnecessary consequence of unsound macro demand policies conducted under the Bundesbank's dictate in response to it, policies that caused the severe and protracted de-stabilization of western Germany in the first place.

On the 'Burden' of German Unification: The Economic Consequences of Messrs. Waigel and Tietmeyer

This paper investigates the causes of western Germany's remarkably poor performance since 1992. The paper challenges the view that the poor record of the nineties, particularly the marked deterioration in public finances since unification, might be largely attributable to unification. Instead, the analysis highlights the role of ill-timed and overly ambitious fiscal consolidation in conjunction with tight monetary policies of an exceptional length and degree. The issue of fiscal sustainability and Germany's fiscal and monetary policies are assessed both in the light of economic theory and in comparison to the best practices of other more successful countries. The analysis concludes that Germany's dismal record of the nineties must not be seen as a direct and apparently inevitable result of unification. Rather, the record arose as a perfectly unnecessary consequence of unsound macro demand policies conducted under the Bundesbank's dictate in response to it, policies that caused the severe and protracted de-stabilization of western Germany in the first place.

"On the 'Burden' of German Unification The Economic Consequences of Messrs. Waigel and Tietmeyer"

This paper investigates the causes of western Germany's remarkably poor performance since 1992. The paper challenges the view that the poor record of the nineties, particularly the marked deterioration in public finances since unification, might be largely attributable to unification. Instead, the analysis highlights the role of ill-timed and overly ambitious fiscal consolidation in conjunction with tight monetary policies of an exceptional length and degree. The issue of fiscal sustainability and Germany's fiscal and monetary policies are assessed both in the light of economic theory and in comparison to the best practices of other more successful countries. The analysis concludes that Germany's dismal record of the nineties must not be seen as a direct and apparently inevitable result of unification. Rather, the record arose as a perfectly unnecessary consequence of unsound macro demand policies conducted under the Bundesbank's dictate in response to it, policies that caused the severe and protracted de-stabilization of western Germany in the first place.