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Political Stabilization Cycles in High Inflation Economies

Author

Listed:
  • Stein, Ernesto
  • Streb, Jorge
Abstract
High inflation economies do not always exhibit smooth inflationary processes; sometimes stop-go cycles of inflation are observed. This paper relates these stop-go episodes to a political cycle: Governments can defer inflation until after elections to increase their chances of being reelected. This is modelled as a two-period game of incomplete information where voters try to pick the most competent candidate, and inflation (which is used as a signal of competency) can be lowered by the government in the short run through foreign debt accumulation.

Suggested Citation

  • Stein, Ernesto & Streb, Jorge, 1994. "Political Stabilization Cycles in High Inflation Economies," Center for International and Development Economics Research (CIDER) Working Papers 233383, University of California-Berkeley, Department of Economics.
    • Handle: RePEc:ags:ucbewp:233383
    DOI: 10.22004/ag.econ.233383
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    More about this item

    Keywords

    Political Economy;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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