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Conflict inflation and delayed stabilization

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  • Seghezza, Elena
  • Morelli, Pierluigi
Abstract
There are numerous political economy approaches to the question of delayed stabilizations. However, all these approaches regard inflation as the unintentional result of the behavior of interest groups. In this paper we take the opposite view, namely, that when there is polarization of financial wealth, inflation is used as a tax to transfer the burden of stabilization onto some interest groups. In countries characterized by financial polarization, stabilization can occur only when there is a change in the political and economic equilibrium, and when parties which represent interest groups adverse to inflation support a new government coalition. The estimates of a Probit model support this hypothesis: the stabilizations after World War I and after the Great Inflation of the 1970s in several European countries showed remarkable political regularities. In fact, generally, these stabilizations occurred when there was a reversal of the political-economic equilibrium and government coalitions including rentiers’ representatives took power.

Suggested Citation

  • Seghezza, Elena & Morelli, Pierluigi, 2014. "Conflict inflation and delayed stabilization," Journal of Macroeconomics, Elsevier, vol. 39(PA), pages 171-184.
    • Handle: RePEc:eee:jmacro:v:39:y:2014:i:pa:p:171-184
    DOI: 10.1016/j.jmacro.2013.10.002
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    1. Sbarile, Andrea & Blampied, Nicolás, 2024. "Conflict Inflation, Political Exchange and Failed Stabilization in Post-Convertibility Argentina," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 77(2), pages 265-292.

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    More about this item

    Keywords

    Delayed stabilization; Political exchange; Rentiers; Inflation;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations

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