Israel 1983: A Bout of Unpleasant Monetarist Arithmetic
31 Pages Posted: 7 Apr 2008
There are 2 versions of this paper
Israel 1983: A Bout of Unpleasant Monetarist Arithmetic
Israel 1983: A Bout of Unpleasant Monetarist Arithmetic
Date Written: February 2008
Abstract
From 1970 to 1985, Israel experienced high inflation. It rose in three jumps to new plateaus and eventually exceeded 400% per annum. This paper claims that anticipated monetary and fiscal effects of a massive government bailout of owners of fallen bank shares caused the last big jump in inflation that occurred in October 1983. Bank shares had just collapsed after a scandal in which it was revealed that banks had long manipulated their share prices. The government promised to reimburse innocent owners for the diminished value of their bank shares, but only after four or five years. The public believed that promise and public debt therefore implicitly increased by a large amount. That implied future monetary expansions. Because that was foreseen, inflation immediately rose as predicted by the unpleasant monetarist arithmetic of Sargent and Wallace (1981).
Keywords: Inflation, Rational Expectations, Inflation Tax, Public Debt
JEL Classification: E31, E50, H60
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Modern Hyper- and High Inflations
By Stanley Fischer, Ratna Sahay, ...
-
Modern Hyper- and High Inflations
By Ratna Sahay, Carlos A. Vegh, ...
-
Stopping High Inflation: An Analytical Overview
By Carlos Végh
-
Stabilization with Exchange Rate Management Under Uncertainty
By Allan Drazen and Elhanan Helpman
-
Supply-Side Effects of Disinflation Programs
By Jorge Roldós
-
Disinflation and the Recession-Now-Versus-Recession-Later Hypothesis: Evidence from Uruguay
-
Inflationary Consequences of Anticipated Macroeconomic Policies
By Allan Drazen and Elhanan Helpman
-
Devaluation Risk and the Syndrome of Exchange-Rate-Based Stabilizations
By Enrique G. Mendoza and Martín Uribe
-
By Luis Catão and Marco E. Terrones
-
Domestic and Foreign Disturbances in an Optimizing Model of Exchange- Rate Determination