Sources of inflation and the effects of balanced budgets and inflation targeting in developing economies

Arbeitspapier

This paper presents a model of inflation in developing economies and makes uses of it to evaluate macroeconomic policy in those countries. We see cross-sectoral interactions between demand and supply side forces as central and show that the standard macroeconomic policy recommendations of inflation targeting and balanced budgets (i) increase volatility by amplifying external shocks and (ii) can lead to premature deindustrialization. The analysis applies to economies with marked underemployment, a central feature of developing and emerging countries. The recent Brazilian experience is used to illustrate the argument.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2020-08

Classification and Topics

• Classification: Wirtschaft ; Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy ; Fiscal and Monetary Policy in Development ; Industrialization; Manufacturing and Service Industries; Choice of Technology
• Subject: inflation targeting ; Dutch disease ; overvaluation ; commodities boom ; Washington consensus

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Martins, Guilherme Klein ; Skott, Peter
• Event: Veröffentlichung
• (who): University of Massachusetts, Department of Economics
• (where): Amherst, MA
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/227899
• Last update: 30.03.2025, 6:52 AM CEST