Stopping Hyperinflations Past and Present

86 Pages Posted: 4 Jul 2004 Last revised: 14 Dec 2022

See all articles by Rudiger Dornbusch

Rudiger Dornbusch

Massachusetts Institute of Technology (MIT) (Deceased)

Stanley Fischer

Bank of Israel; National Bureau of Economic Research (NBER); International Monetary Fund (IMF)

Date Written: 1986

Abstract

We examine four successful stabilizations from high inflation -- Germany in 1923,Austria in 1922, in Poland 1924-27, Italy 1947 --and the two ongoing attempted stabilization in Israel and Argentina, with the aim of identifying general lessons from those episodes. The key issues in a stabilization are the budget, the exchange rate, and money. Budget deficits were significantly reduced in each case , but were not in all cases completely removed. The exchange rate was pegged in each case , through in all but the Italian case, each stabilization was also preceded by at least one episode in which attempted stabilization through exchange rate pegging was unsuccessful. As pointed out by Sargent and others , money growth rates were high after each stabilization, suggesting that any stabilization that strictly controls the growth of money will produce serious recession. A common feature of stabilizations is a period of extremely high real interest rates.

Suggested Citation

Dornbusch, Rudiger W. and Fischer, Stanley, Stopping Hyperinflations Past and Present (1986). NBER Working Paper No. w1810, Available at SSRN: https://ssrn.com/abstract=227158

Rudiger W. Dornbusch

Massachusetts Institute of Technology (MIT) (Deceased)

Stanley Fischer (Contact Author)

Bank of Israel ( email )

P.O. Box 780
Jerusalem, 91907
Israel

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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