When is stabilization expansionary? Evidence from high inflation

William Easterly

    Research output: Contribution to journalArticlepeer-review

    Abstract

    Countries which stabilize from high inflation - here defined as an annual rate above 40% - usually have output expansions in the first and subsequent years of stabilization. These expansions occur in both exchange-rate-based and money-based stabilizations. The paper reaches these conclusions after examining a sample of all 28 episodes in the international data that meet a pre-defined criterion for stabilization from high inflation. The results do not change with alternative growth and stabilization definitions. The paper documents similar expansionary stabilizations in historical data and in the recent experience of the former Communist economies. Expansionary stabilizations may be an indirect confirmation of recent theories of political economy that predict that stabilization will not occur until the gains are very large.

    Original languageEnglish (US)
    Pages (from-to)67-107
    Number of pages41
    JournalEconomic Policy
    Issue number22
    DOIs
    StatePublished - Apr 1996

    ASJC Scopus subject areas

    • Economics and Econometrics
    • Management, Monitoring, Policy and Law

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