Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Israel's Stabilization Program of 1985, Or Some Simple Truths of Monetary Theory

Israel's Stabilization Program of 1985, Or Some Simple Truths of Monetary Theory Abstract Within a period of two months, and with minimal adverse effects on employment and the real functioning of the economy, Israel's 1985 stabilization program reduced the annual rate of inflation from close to 500 percent to less than 20 percent (corresponding, respectively, to average compounded monthly rates of 16.1 and 1.5 percent) and has maintained that situation until now (1992). The major purpose of this paper is to use this inflationary experience as an illustration of some of the simple truths of traditional monetary theory. At the same time, this experience also illustrates the advantages of a heterodox policy (that is, one that, in addition to restrictive monetary and fiscal measures, makes temporary use of wage and price controls, often within the context of a "social contract") in bringing an inflationary process to an end. A second purpose is to explain the unique political circumstances that—despite the aforementioned earlier failures—created the credibility that enabled the 1985 program to succeed. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic Perspectives American Economic Association

Israel's Stabilization Program of 1985, Or Some Simple Truths of Monetary Theory

Patinkin, Don
Journal of Economic Perspectives , Volume 7 (2) – May 1, 1993
Download PDF
26 pages

Loading next page...
 
/lp/american-economic-association/israel-s-stabilization-program-of-1985-or-some-simple-truths-of-IVEZ90KM0y

References

References for this paper are not available at this time. We will be adding them shortly, thank you for your patience.

Publisher
American Economic Association
Copyright
Copyright © 1993 by the American Economic Association
Subject
Articles
ISSN
0895-3309
DOI
10.1257/jep.7.2.103
Publisher site
See Article on Publisher Site

Abstract

Abstract Within a period of two months, and with minimal adverse effects on employment and the real functioning of the economy, Israel's 1985 stabilization program reduced the annual rate of inflation from close to 500 percent to less than 20 percent (corresponding, respectively, to average compounded monthly rates of 16.1 and 1.5 percent) and has maintained that situation until now (1992). The major purpose of this paper is to use this inflationary experience as an illustration of some of the simple truths of traditional monetary theory. At the same time, this experience also illustrates the advantages of a heterodox policy (that is, one that, in addition to restrictive monetary and fiscal measures, makes temporary use of wage and price controls, often within the context of a "social contract") in bringing an inflationary process to an end. A second purpose is to explain the unique political circumstances that—despite the aforementioned earlier failures—created the credibility that enabled the 1985 program to succeed.

Journal

Journal of Economic Perspectives – American Economic Association

Published: May 1, 1993

There are no references for this article.