IMF INTERNATIONAL ATIME FROM THE FINANCIAL STABILIZATION, FISCHER STANLEY DEVELOPMENT ESSAYS OF CRISIS SYSTEM, AND

a from Essays IMF Crisis of Time

a from Essays IMF England London, Massachusetts Cambridge, Press MIT Fischer Stanley Development and Stabilization, System, Financial International The Crisis of Time

( a essays IMF Stanley. Fischer, Data Cataloging-in-Publication Congress Library America. States United bound printed Kong, Hong Typesetters, Asco 3B2 on Palatino set was This publisher. from writing permission without retrieval) storage information recording, photocopying, (including means mechanical or electronic by form any in reproduced be may book this part No reserved. rights All Technology Institute Massachusetts / development stabilization, system, financial international the crisis: of : (hc. 0-262-06237-2 ISBN index. and references bibliographical Includes cm. p. Fischer. 9 10 2003051251 3320.042dc21 2004 HG3881.5.I58F55 Title. I. Developing rates exchange Foreign 4. stabilizationDeveloping Economic 3. countries. policyDeveloping 2. Fund. Monetary International 1. paper) time Stanley alk. 8 7 6 5 4 3 2 1

I xiii Sources ix Preface Contents 1 System Reform 7 Resort Last Lender an for Need 2 3 37 Fifty at Bank World 33 4 71 Crisis Asian and IMF 67 Fischer Stanley 99 Commission Advisory Institution Financial International to Presentation IMF: the of Role The 95 On Introduction

5 Contents 6 117 IMF Liberalization Account Capital 115 7 163 Transition Stabilization, Policy, Macroeconomic II 139 System Financial International Reforming 135 8 169 Banking Central Modern 165 9 227 Correct? View Bipolar Is Regimes: Rate Exchange 223 385 Stabilization Israeli in Role States United the of Recollections 383 11 Fischer Burton David 327 Moderate Ending 323 Introduction 10 Vegh Carlos and Sahay, Ratna Fischer, Stanley 255 Inflations High Hyper-and

519 Index 503 Reform Economic 501 16 487 Years Next Years, Ten Past ABCDE: 485 15 Fischer Easterly William 461 Poor the Inflation 459 14 457 Development Poverty III 431 Brussels? from Europe Eastern Is Far How 429 13 Vegh Carlos Sahay, Ratna Fischer, Stanley 401 Experience Early The Economies: Transition in Growth and Stabilization 397 Introduction 12 vii Contents

which 19942001, period from date book this collected papers Preface 2 (chapters but All development. poverty bloc, Soviet members former process transition it, end inflation regimes, rate exchange independence, bank central monetary them yearsamong confronted issues reflect They Fund. Monetary Director Managing Deputy First as while written 7) I after published exceptions two Fund, at IMF, 4, like agency existence case fundamental reflects resort, lender need 1, issues. those many discuss system, role I, section chapters theinternational reforming for suggestions numerous were there attack, severe under came aftermath, crisis during particularly years, these During IMF. examines liberalization, account capital 5, crisis. responses policy critics early an was crisis, Asian on 3, critiques. events response in changed how needed, is it why does, IMF what explains that Commission) Advisory Institution Financial International (the Commission Meltzer made 6 Chapter And decade. last financialcrises issueinthe a are Fund over controversies system. financial reform countries mattered decisions Funds The members. country itsdeveloping well-beingof tothe and system international the to importance its of served joined presentation discusses mark

come frequently decisions, makes Because issues. close-cut possibly other or way one commit decision-makers required, system.And financial international behavior matter assistance, it Preface crisis controversy This controversy. center inevitably differ, opinions country, heat made decisions especially inevitable, mistakes receivedfor attention close paid management, certainly countries, The accept. must countries member its officials responsible Funds decisionsthe making responsibility those life as positions modified medicine. battlefield engaged when audiences. general aimed speeches journals; professional published originally nontechnical. relatively journals, standards by policy-related, are book this chapters All back. fight position no who staff, hard-working talented, dedicated, attacks objectionable what disappointing. was That silent. remain others public; us members our Some attack. under came programs voted had governments from support public more receive preferred have would We controversies. object did management healthy, necessary Criticism wrong. they analysisthat economic basis believedon cases some inconsistent, mutually were criticisms all, please not could we But right. left critics, with intellectually engage tried changes, further open remained readersand so and period, during Fund confronted issues major encompasses matter, subject their because types both included book, section each In work. deployed is which at levels different see themwill among be will economics students I beliefs policy basic Although views. my changes reflect relevant, where and, context, in them set papers1 on a jobthat to inflation economies many that economy, of growth sustained stabilityand the for isessential framework macroeconomic time fact crisis, result, hope comment brought sound

is targeting Preface instance, For did. specific change, reductiondid target explicitly should growth, good structural friendly marketpolicy, monetary conducting way use temporary towards inclined favorably rate exchange than 1994 reducing when as And, while changed poverty dealing role views 2, chapter introduction length book. chapters three are UCLA, moved later Vegh, Carlos Sahay Ratna supported. programs policies debate vigorous evidence fresh only resulted changes These Fund. at collaborations. fruitful enjoyable extremely one On poor. inflation Bank, World then Easterly, Bill inflation, onmoderate IMF, Burton David coauthors thanks owe And Hansen. Elizabeth Mary Chote, Robert Adams, Hughes Claire benefited criticism. sometimes supportincluding papers, some on assistance direct their inside colleagues other immensely Iam press. volume this bringing contribution essential her University Columbia Mishra Prachi grateful but does, substance Camdessus Michel understanding action, him seeing by more even them. implements that staff behind stand them, for responsibility accept out, carried them get fight decisions, make has Aninat. Eduardo Sugisaki, Shige Narvekar, R. P. Ouattara, Alassane friend close directors, managing deputy fellow my working enjoyed a outside. meetings, board both countries), Funds representatives (the Board Executive from deal Summers; Larry especially Treasury, States United those least not governments, member of officials many I assistance. financial IMF seeking were members with negotiations program and discussions during much learned called or doing, was Fund what about wrote who institutions research policy Dornbuschand Rudi late the academeespecially in friends thank to also like pegged means left explain am leader great had would

Director, Managing Deputy First as years seven After difficult. particularly issues when discussion confidential available were or views, express Preface xii It for admiration enormous down part no in That it. asked what delivered after which disciplined, highly undertakes, tasks relative small very organization, rely. system financial and community international upon professionals, first-rate effective, dedicated, are They staff. due more Even Board. Executive its quality whom with them some name tempted if but closely, most I that recently so published been has Inflations, High Hyper-and Modern 9, Chapter 1. Note IMF. of staff the dedicated is book This stop. knowwhere Iwould a from it view to time had yet not perspective. stepped superb result am worked started, have fresh

Norbert Goodhart, Charles Stanley Capie, Forrest England, Symposium Tercentenary Banking: Future Banking, Central Modern 1994. 7. Publishing. Blackwell 576. F557 November 109,no.459, Journal,vol. System, Reforming 6. University. 110. 1998, May 207, no. University, Princeton Princeton: Tarapore. S. Savak Rodrik, Dani Polak, J. Jacques Massad, Carlos Garber, M. Peter Dornbusch, Rudiger Cooper, N. Richard Finance,StanleyFischer, Essays Liberalization Account Capital 5. 2, February D.C., Washington, Commission), (Meltzer Commission Advisory Institution Financial to presentation IMF, Role 2000. 4. Fund. 20, March UCLA, Lecture, Funds Forum Crisis, Asian 1998. 3. Verlag. Springer171200. Springer-Verlag, (ed.).Heidelberg: System,H.Genberg Monetary The in Fifty, at Bank World and IMF The 1995. 2. Association. American from permission with Reprinted 85104. 1999, no.4,Fall 13, Perspectives,vol. Economic Journal Resort, Last of Lender International an for Need the On 1999. Stanley. Fischer, 1. Sources

( permission. 160178. May no.2,part1, Banking,vol.33, Credit, Money, Inflation William, Easterly, 14. Mohr. 97145. Mohr, J.C.B. bingen: Tu (ed.). Europe?,H.Siebert Vadis Quo Brussels? Europe Eastern is Far How 1997. 13. theAmerican Perspectives,vol.10,no.2,Spring1996,4566. Experience, Early Economies: Growth Stabilization 1996. 12. 597. December1995,589 vol.42,no.4, Quarterly,Hebrew), (Economic Lecalcala Rivon published Also November Program, Stabilization Anniversary Tenth on Conference Associations at presented Stabilization, Israeli Role States United Recollections 11. Fund. Monetary International from 1596. Hungary, National IMF andG.Szapary C.Cottarelli Economies, Transition Experience Inflation: Moderate Ending 1998. Fischer. Stanley David, Burton, 10. 837880. 2002, September Literature,vol.XL, Inflations, High Hyper-and Modern 2002. Vegh. A. Carlos Sahay, Ratna Stanley, 9. Association. American 324. 2001, Spring 2, no. Perspectives,vol.15, Economic Journal Correct? View Bipolar Is Regimes: Rate Exchange 2001. 8. Press. of permission with Reprinted 262308. Press, University Cambridge Cambridge: Schnadt Sources xiv 27, March Bombay, Lecture, Commemorative Exim Poor, the Reform Economic 1995. 16. 7786. Bank, D.C.: Washington, (eds.). Stiglitz E. Joseph and Boris 1998,Pleskovic, DevelopmentEconomics Conferenceon Bank World Annual in Years, Next Years, Ten Past ABCDE: 1999. Stanley. Fischer, 15. reserved. rights All University. State Ohio The 2001

System Financial International Reform and IMF the of Role The

forming been Resort Last Lender International Need On set argument Introduction before time chapter. or one notion 1960s. late MIT at lectures economics Kindlebergers Charles issue about heard should insisting kept Brazil, representative venerable Kafka, Alexandre IMF, Inside act system, operation responsibility take needs banks sense important an financing, for turned lend believe markets led had billion $40 full up come 1995 February failed government U.S. When Russia. Asia, Mexico, crises with dealing IMFs reflect need provided paper this writing impetus main The way. operating already that say privately would Camdessus, Michel Director, Managing resort, took shareholders) major involvement heavy sometimes (with Fund when And acting was though felt it packages, financing assembling including crises, Asian managing in role I chapter, resort. stay thus credit, bank central ability function, lending focus some LOLR, discussing In manager. and crisis those functions, two out carrying (LOLR) lender to exchange foreign of amounts unlimited provide itcannot since resort last lenderof international as operate cannot definition by IMF the analysts, these For a from suffering currency. its on long wrote first few leading define panic. country run

Fischer Stanley paper interpret amounts unlimited money ability institutions only applying LOLR on insist who Accordingly, definitions. over arguments up tied getting point LOLR.However,there attribute money, create able resort advantageous while detail some provides chapter Ibelieve resort. their meet does such if managereven act institution manager, lender role discussing countries. market emerging especially countries, other exchange foreign charged those argue economies; major banks central with lies stability ensuring responsibility primary deny effectively. more play could role, playing increasingly IMF argues It effect. argument resolution involvement definition crises solvency between use not government: judgment political because useful, conceptually distinction Nonetheless, debts. its pay In insolvency borne have burdens real loans, large sufficiently provision by resolved liquidity whereas whole, emerge can lenders all crisis, whether later until clear never it However, not. should they crisis or existence from results reduce also essential are Those involvement. sector private framework part which crises, financial sharing burden rules advance out spell seeking for reason one That crisis. a resort, last I as But, crises. individual resolving and system international of design both account into taken be has that problem important an Moral lender. managing provided, being insurance when present always problembecause hazard moral to solution perfect no is there chapter, the in useful convincing emphasize did sovereign matter country pure particular

1 Chapter Introduction create. insurance such incentives adverse theinsuranceagainst thebenefits balancing requires a costs severe impose asked effect were overplayed, being problem during felt advance management crisis rules principles define try critical done, should Because others. example serve country hazard more would terms these Funds discuss fear background, been have may factor another But LOLR. money, create not could since argument analytic main Their resort. an characterization objected IMF Board Executive members several clear became written, was chapter this After precisely. actions future all out spell possible be never it recognizing hazard. moral limiting useful is resort about ambiguity constructive words, other I chapter, in view that should. them, mitigate can we If citizens. their countries innocent relatively punish occasion on occur to continue will panics and crises financial continue, resortto last of lender international as Fund ofthe role discussiononthe the for ituseful Ibelieve it. with sometimes particular while disagree

tequila subsequent 1994, yearsMexico countries spread virulence, frequency, Fischer Stanley Resort Last Lender International an Need On place putting institutions governments years, months coming In 1971. Woods Bretton breakdown since structure rethinking serious led Unionhas Soviet former rest Europe eastern addition America Latin Russian Asian by affected itself Russia region; within crisis spreading 1998, 1997 Asia Asia; east two or I virulence reduce global make how consider As years. five have than contagion, extent crises, market emerging intensity frequency reducing do surely can we us, with always will while But intercorrelated. significantly are ways sharply, move inevitably prices asset banished, be cannot contagion and volatility point home drive way this in goal express To markets. domestic better well as operate should markets capital system reform for proposals underlies vision system. international strengthen designed changes a revisit to like 1 Street. Lombard (1873) Bagehots Walter is resort writing classic best-known The resort. lender on century, last crises financial the of out emerged that from lesson famous most day series would literature

Fischer Stanley at freely, lend case reviewing startby Iwill panic. no when business course ordinary marketable collateral basis rate, follow. supposed rules set economy, domestic lastresortin created hazard moral discuss then existence problem is, resortthat it. mitigate measures crisesand chances raise risky incentives create may needs too system turn resort. effective more made be its agenciesand official other concert acting generally current functions important undertaken has bank, not although Fund, Monetary International that argue typically are They 1841). MacKay, 1996; (Kindleberger, centuries place taking been panics crises Financial crises. mitigation prevention associated Resort Last Lender Domestic system.2 international payments, meet debtors different many ability expectations interlinked tightly based credit chain Because assets. or institutions standing in confidence loss will which conditions, limited certain under given credit, assurance an offer role economy. real behavior effects significant have unchecked, if system, financial through contagiously, rapidly, spread can a for need on agreement considerable there While started.3 getting even stop still, better spreadingor from panic I do. should what about persist disagreements some resort, periods lendin must banks solvent failures prevent to lendingand capable it because resort last of lender called is bank central The 83): p. (1986, Meltzer by developed and summarized as conception, (1873) Bagehot traditional the with start crisis, penalty reformed sudden sense

end volume sufficient willing capable either Resort International Need On concerning points main five 8384) (pp. lists Meltzer panic. only Bagehot: derived four first resort, demand, amounts, large made advances, loans, periods. normal discount eligible paper lending restrict It added]. [emphasis panic when business course ordinary marketable is collateral on lend closing, from banks illiquid prevent To States]. United [that such system followed advance stated principles three market. accommodation obtain who those borrowing discourages This rate. interest viewed can thus stock, money aggregate declines panic-induced lenderoflastresortshouldbetoprevent objective overriding that (1802), Thornton attributed (1975) Humphrey instance summarized view, emphasize does other agrees part most statement (1986) Meltzers proceeding. bankruptcy any corporations, insurance deposit depositors, uninsured debt, debentures, subordinated equity, owners by borne losses unit. integral an as firm bids no are there if liquidated price market at sold institutions financial Insolvent event In list: above added which precept, asixth considered be could what extended been has view formulations, recent more some In control. monetary task overall banks I mind, in notion this With institutions.4 individual necessarily but market, to liquidity assure should bank central a deal financingto provides manager.The and roles: two undertaken generally have resort Lenders Resort? Last Lender Only Bank Central Is resort. last lender domestic of role about questions six up take lends itself institution the not whether crisis, potential or acrisis with dealing for responsibility takes manager crisis The rate panic, will crisis.

midst purpose. Fischer Stanley there crisis, extending instance way, right act encouraged agents coordinating) facilitating (or managerial If out carried role neither lender, generally historically While consequences. systemic failure whose institution an then role, coordinating taking necessary resources, access authority, well do that question There Money? Create Ability Need Resort Last Lender Does elsewhere. Kingdom United been has bank, separated sector supervision task frequent more become could manager lender crisis roles separation Indeed, 133135).5 pp. 1996, (Kindleberger, Morgan P. J. 1907, clearinghouses; as such institutions, private Treasury; including: roles, both or one played than other history, U.S. times various bank. when example clearest The money. power have useful find often will resort last takes caused panics However, taxpayer.6 cost first-round no at panic, with deal needed quickly create well-positioned central Then currency. into bank generally, More 1988). Schwartz, 1988; (Kaufman, rare are currency for form take a during determinate not solvency between line pointthe critical Butand companies. insolvent illiquid merely distinguish able shift, this accomplish market Again it. losing back gaining recirculate simply can liquidity principle, least At unnecessary. money additional creating cases, these In healthy. be thought to unsound deemed institutions financial banks those from shift deposits which contagion, by enhanced possibly A insolvency. and illiquidity general in end managed, badly it if small; remain may bankruptcies of number the well-managed, is acrisis potential loan certain Treasury run demand panic run, crisis.If skilled

stem help times, solvent would available made will assure able Resort Last Lender International for Need On a event lend resources endowed resort, (limited) task assigned department Bulgaria, adopted solution one problems, suffer question supply. constrain holdings where boards, currency countries today arises creation constrainedin when bea there whether question, Asimilar market. liquidity effective but right legal key The panics. stay managed gold, good being accepted since rule, break permission given writing preceding crises financial three resort. act enjoined Nonetheless, gold. ability did Bank, held amount accordance created be only could money is, rules; standard gold by bound was England Bank Street,the Lombard wrote (1873) Bagehot time at However, money. free provided straightforward, this All crisis. extent reduce lender. outright than funds, own its putting without coordinator, manager, acted often more has resort lender crises, dealing crises. normal costs anticipated cover Treasury fundsperhaps sufficient endow problems potential agency an up set possible It trouble. institutions market credit provide can it long money, create power have not resortneed last thatlenderof point make examples These manager.7 is while lender, crisis acting are bank central lenders public private cases, these In credit. lines international place put official and markets from borrow Argentina, of case in as reserves, exchange foreign excess hold either may country then system, domestic on pressure puts that shock external apotential with deal to how problemis the If problems. sector banking or panic

I controversial. paper, resortis attribute essential able for advantageous while pointthat This time.8 extended profits lower form implicitly, explicitly either authority, fiscal borne another way one difficulties system major costs case, any problem. with deal required were resources real did simply bank central part (1995), Schoenmaker Goodhart studied packages rescue banking 120 half over used was insurance deposit taxpayer 1993, ending period 20-year In Fischer Stanley stabilize thus credibility lacks would-be money, amounts unlimited without argue Others roles. such undertaken andthatasahistoricalmatter,such usefully acting money create ability not does conceive possibleto it namely, grounds, historical logical being paper this argument interpret should latter take who Those cannot definitionit own ifaccording lender, manager crisis both can played role Should Why resort. applies acceptable availability on decision basing Times? Noncrisis Value its Evaluated Collateral Especially Collateral, against Only Lend Resort Last a there levels, noncrisis at valued and require behind view implicit insight. critical times normal good collateral requirement The collateral. as accepted be would assets holding by portfolios their risks reduce incentive have they collateral, demand know institutions financial when Moreover, panic. after even persist will that insolvency an or panic, immediate because trouble in institution whether test robust but lend By system. steer to trying is resort last of lender the which towards equilibrium make useful Lender rough

generously. rules apply should suggests also rule broadly, More self-fulfilling. becoming panic prevent helps value basis ing International Need On over-nice. occasions some were bank, safety with consistent short amount, immense an exchange bills deposit but outright discounted only bills, purchased security, stock took before; adopted never modes and means every it 1825: quotes 52]) p. edition, [1924 (1873 Bagehot point, on bearing passage post from flinch did We 283284): pp. II, volume 1944, Clapham, quoted (as 1866 May crisis Overend reaction Banks described England Bank Governor spirit, credited been have hardly advances . reserves our one-half advanced had we bed his out perhaps Exchequer Chancellor Charge Resort Last Lender Should Why refused. was house this made assistance legitimate any aware market each lend would which defined need rates. application neither resort, stifle intended is collateral requirement just But loans.9 outstanding other preference crisis, after possible soon as repay encourages tough cheaply borrow able they knowledge secure times, risks excessive take will financial risk reduces trouble. in not are that institutions by credit for demand limits It functions. several serves The Rate? Interest a at lent frequently has resort last of lender practice, In times. normal during interest to relative be must penalty the Instead, 1998). (Giannini, rate famous similar Penalty panic. nonpenalty before I am

idea individual lending hazards political avoids market, providing Moreover, saved. decide private markets, liquidity sufficient provision that, holds This Institutions? Individual Not Market, Only Fischer Stanley themidst uncertainties given possible. followed one accepted cannot precept survive, institutions thus future, exist what over definition Almost conduct rule panic, throes do During Advance? Stated Clearly Be Lend Would Resort Last Lender Which Principles Should resort. notion reject only lend view adopting (1998) Huang Goodhart Indeed, across credit allocating job believe they if risks excessive have fear who some, However institutions. healthy otherwise on runs incentive reduce tend effective an there knowledge about constructive argue panics, stem available always stabilize seek step either as act would which under circumstances advance precisely out spell able be ever bank central no unavoidable: simply Some risks.10 fewer take encourage should by generated uncertainty The prevent sector official participants market many 1998, August Russian in example notfor does but deliver, to expected resort last of putative when occur occasions implies for constructive, not is unnecessary But time. that at down lay will it conditions the and manager crisis or lender a such In devaluation. makes ambiguity worthy general financial panic sound crisis, crisis. setting,

costs economic Resort Last Lender International Need On one system possible worst describe 24) (1983, Herring Guttentag indeed, worse; crisis reasons three There function. not does cannot institution relevant action, expected specifying First, possible. extent spell implementing announcing Second, justification. (1873) Bagehots This crises. self-justifying unnecessary likelihood bank central serve nonetheless Spelling century. 19th crises credit additional provide gold violated when England Bank were as broken be extremis course, Of actions. spur-of-the-moment motivated politically risks reduces event, action freedom own its limits somewhat advance, rules out spelling by Third, collateral. good assets holding instance, behavior; sector private stabilizing other for incentives provides rules, set around revolves questions six these discussion Much them. breaking cost incurring before hesitate since purpose, I which hazard, issue topic, property; down burns fire individual an is example extreme but standard The behaviour. insurees on have may view, point companys effects, adverse refers 646), p. (1987, Guesnerie notes hazard, Moral Hazard Moral turn. now prevent care less takes insured, becoming after who, holder insurance where situation any applies idea generally, More leads faces it reduction a during from loans receive would because risk against protected better are they believe who managers both respect with arise could problems hazard moral resort, domestic case In measures. precautionary neglect or actions, riskier take that leaving panics, unwarranted stop only intervene to able was resort last lender If 1977). (Hirsch, institutions financial those in investors of actions the and given particular useful common will fire. perceived party crisis,

have thus failing, them toprevent doctrine, know already Moreover, crises. unwarranted warranted between perfectly distinguish able unlikely But resort. created incentives right face their fail, times normal insolvent Fischer Stanley believe motivation existence hazard. combine generally policies Instead, solution. perfect no has problem recognize important hazard, reduce how considering helpful. would managers both hazard offset reasons, all For forthcoming. will sort some I 1999). (Stern, appropriate procedures bankruptcy enforcement including mistakes, make who those costs imposition self-regulation; encouragement regulation; official hazard: moral measures categories three there provisions), too-big-to-fail resulting well (as resort from loans eligible be First, turn. need and panics likelihood regulations regulated. activities portfolio banks case liability government limiting with (along banks monitor depositors incentive an provide intended is insurance deposit covered accounts bank size on limit The regard. this helpful investors information provision for Requirements sophisticated particularly institutions, sector encourage seeks system Second, investors. taking risk well-informed preventing not while a arranges manager, crisis as acting resort, last lender addition, In trouble. into get when operate rarely limits these contagion, financial threatening without fail to big too are large that concerns of because however, failure); future. in institutions such monitoring careful more encourages it sector, private the by financed package rescue consider

at Lending mistakes. made who those costs imposing seek Third, Resort Need On A work? limit work devices these well How way. orderly out carried firms insolvent workouts ensure help which laws, bankruptcy well-defined provisions under liquidated sold institutions insolvency, losses. suffer firm claims subordinated holders equity-holders above, stated law fifth Meltzers specified and, occur, typically should helped being management Changes costs. impose way rate existence depression, euphoria waves by caused been many taking; risk sector private scope appropriate provides any happen bound are some eliminated; fully than controlled, lived be something Moral sweeping. too answer But well. very Not this: decades, two during around frequency on based judgment, real comparison right insurance. lenders predates crises history long all, after resortfor operation between rather but no world them. without one insurance) deposit (and I However, judgment. sophisticated more this make attempted have studies careful aware not such assumption including insurance, forms official various presence absolve likely while do to important it conclude would instability, much blame from resort, case Resort? Last Lender International An system. domestic in hazard moral controlling job needs system international arises question years, five turmoil financial global aftermath the In accepted. broadly resort lender there whether is issue The resort. last of either crises, actual and potential with dealing responsibility takes that institution an for role a as lender, differs This both. or manager, penalty first hypothetical am suspect study, better useful crisis

Reservepursued Federal U.S. France, de Banque England, Bank were candidates natural agencyand no means he resort, absence Depression Great blames (1986) when instance, For economy. national their along global performance responsibility some accept should banks leading whether asked sometimes question from Fischer Stanley In facing countries act agency case onthe specifically focus Iwill States. United interests actions taking was though even sense, as acted has Fed 1990s, late approvingly, say, probably would Kindleberger found it which crisis dimensions took policy I by countryfaces within sectors private official There problem. financing external solution irrelevant typically currency creating capable own have may country fact Thus, currency. produce cannot bank central exchange. massive assistance need macroeconomic itself. perhaps instability effects mitigate help resort last lender an panics,11 signs theclassic exhibiting contagious, but volatile extremely only not flows because with generate restrict and/or adjust rate its permit demand likely are measures such all However, bankruptcy. into put adequatebe system legal if necessary, canif corporations institutions financial obligations collect attempt can creditors level, microeconomic At surplus. account result a accordingly there adjustment, needed overshooting sup evidence empirical nor theoretical neither argue this of Critics countries. developing market emerging including economy, world beneficial potentially is mobility capital international that view on also rests argument The crisis. attemptingtomanage in authorities domestic assist and loans exchange foreign emergency provide to both sector public the for monetary crisis, countryand mean potential countryfaced sudden current panic considerable

ports Resort Last Lender International Need On I Finally, industry. efficiency reduces competition, foreign sector protect thereby off themselves close addition, In countries. goal eventual should suggests which capital, advanced most economically all However, markets. costs bearing evidence econometric convincing little yet there true crisis. Asian east immune relatively appeared limited 1990s during rapidly grown India China both growth. markets openness between link theeconomicsprofession account regard with establish, course cannot we where behind envisaged inflowscan short-term seek controlsparticularly Some likelihood reduce flows provided Woods Bretton founders reduced. scale frequency if realized be benefit economic for potential extent: this correct mobility critics too. suspect, highly as regarded was its showing work empirical when liberalization, trade ago part a needs system only not argue Iwill implemented reforms other success on extent important depend answer crises. midst or times normal either years, next turn will more whether question open remains It access. market terms dearly them cost avoided, widely inefficient, were emphasizing around, time themthis rejected 1980s such had often American Latin policymakers Indeed, years. enacted have countries few how impressive surprising is it But Malaysia. adopted academics several by crises recent in advocated been outflows limit to controls use The strengthened. are an structure financial and framework macroeconomic while regime has IMF also but mobility, capital international from benefits net greater reap can economy global the that so resort, last of positive decade useful transitional lender

I resort, potential Funds focusing In effectively. function exercise itpossible make sectorshould bail efforts relating those considerationparticularly under now system Changesin 1998). (Boughton, decades two manager role playing increasingly Fischer Stanley through cooperation promote [t]o being: fundamental describesthefirst 1944, enactedin Agreement, Articles I(i) Article example, For functions. important other aside argument turn immediately me Let monitoring. advice policy including assistance, technical information; provision associated surveillance access; market lack purposes account current lending include functions Other problems. monetary on collaboration consultation for machinery provides institution act bank. necessarily manageris or crisis resortwhether lender domestic even earlier, As money. freely cannot bank central an not is resort last close structure, financial because lender, access gives union,12 countries negotiatingwith crisismanager lead assigned countries. lend can reserves international create usedto far so abilitynot also below, discussed will Finally, packages. financing arrange helping and a at up set Since trillion. $2.5 over that larger; nine trade, volume maintained been had size. five today, quotas actual calculate used 1945 applied formula quota larger.13 times three than more be would 1945, was it states member output relative same today were If 1945. since significantly shrunk economy, world Relative currencies. own their deposit agree IMF members which amount is, quotasthat countries in increases aseries of aresult as size present its reached has Fund job. do to resources hassufficient IMF,ascrisislender, the whether arises question The capital private when leave permanent credit pool crisis. time

assemble still conception, original shrinkage significant Despite flows. trade size than even declined private small, were Resort Last Lender International Need On response package prevent inreserves increase targeted whicha under circumstances envisage easy reserves These assets. reserve existing supplement arises, when need, global long-term meet to (SDRs) Rights allocate majority percent 85 Board Executive Agreement, Articles XVIII Article Under reserves? create able useful Would helpful. bank, central resort last essential it while domestic noted discussion earlier hazard. moral deal measures including reforms, effectiveness turn which flows, capital ofinternational volatility depend problems scale relative enough large future will Whether importance. particular deem cases packages these significantly add may institutions international other member packages, rescue Asian east Brazilian recent Further, borrowing. by resources own use augment can problems, systemic In for indeed, economy; world credit flows up However, 1998. fall case seemed period with dealing well-suited form current its not would mechanism this so holdings quota proportion made be SDRs allocation affects speedily react IMFs on constraint main 1994. Mexican after introduced Mechanism Financing Emergency using rapidly, very move ability demonstrated 1997 late Korea emergencies, slow Fund complains 188) p. (1996, Kindleberger manager. acts It broadly. more lend could Rights, Drawing Special issue an through circumstances, specified and countries, individual lender as act to capacity the has thus IMF The countries. group suffering a is excessive part it, approaching in long too delay crisis they because also but crises, financial experience that governments of characteristic sizeable crisis. seizing short general problem specific common

needed would actions taking avoid hope Fischer Stanley I directly, issue addressing before However, better. done be surely can job but resort, lender respects important acts already IMF System Financial International Context Evolving program. over subject, first regard standards. sector; private bail measures holdings; reserve systems; system: international evolution ongoing elements central four discuss best best. regime monetary system question answer clear no produced has controversy using benefitted many forget we should Nor crisis. global by severely been Turkey, Africa, South Mexico, them among countrieswith Some succeeded have Kong, Hong Argentina pegs, hard very Several however. ironclad, from far crisis susceptibility between link The crises. postseverity contributed system, banking especially taking, risk kinds certain behavior profoundly stable was these within assumption Further, rates. pegged less countries affected Brazilhave Russia, Indonesia, Korea, Thailand, yearsin three last financial external major striking it inflation. history its particularly history, economic countrys on depend seems as fixed or unlikely world years, coming decline nominal number while But bands. wide with pegs crawling including systems, rate flexible more choice towards balance shift likely crises recent virulence Nonetheless, governments. weak discipline avital often is devaluation of fear that and efforts disinflation anchor through definitively, so do want well may they rates, their fix countriesdesire If freely. countriesfloat all for rates exchange which in a to move Europes if run, longer the In board. Fund will century country currency

even sentiment investor shifts sharp Because currencies. fewer unions additional may result succeeds, currency single Resort Last Lender Need On off rate small those than better fared generally foreign large very with fact emphasis little surprisingly been there regarding Second, resort. last lender exist still rates, their peg continue some because contagion, likelihood determining factor important liabilities external short-term ratio recognized Korea, particularly countries, run obvious most ways. several built exchange Foreign accordingly.14 accumulating 1995), (Calvo, crisis likely it indeed, surplus; impart surpluses account current running up build market emerging desire Argentina return above well typically costs interest although borrowed, Reserves years. few next economy world impact place into put have without possible It Rights. Drawing Special issue example, on, agreement by increased also might reserves International ifneeded. shortnotice at drawn be can credit, lines contingent precautionary arrange reserves, borrowing idea I However, variables. other seigniorage distribution demand, aggregate effects terms differ approaches preferable: approach decide analysis detailed a on hazard moral court so do withdrawing, is which from countries financing responsibility full itself upon take not should increases, internationaleconomy flows capital role level, economic At compelling. simple are arguments The crises. resolution involve need attention public much as received has architecture financial international new in topic no Third, reserves. holdings larger lead will crises of experience recent another, or way one that tasksince impossible an accept and investors sector private for incentives wrong the set to scale, country floating panic number general deflationary variation more expect major

out carry resources enough will Fischer Stanley can Such lenders. from credit lines precautionary place put mentioned, just One investors. incautious previously bailouts unlimited available money public unwilling officials elected level, political At A reserves. increasing actually cheaper might reserves, holding supplement suggested approach, event rescheduling facilitate modified contracts bond proposal Mexican after deputies G-10 possibility Sachs, Jeffrey associated suggestion, another Yet unanimity.15 than rather majority decisions permitting including allow or impose formally payments crisis, reflect likely most but borrow, them expensive more make measures object developing Some bankruptcy. referred which But programs. share forced always creditors) (or banks it instance, For crises. frequency increase solutions proposed lest carefully, needs crises financing external Private risks. pricing appropriate have would on, insisted hint mere exits rush incentive involvement, with even suggeststhat problem This sometimes country: each circumstances according differ should involvement that suggests also It necessary. continue resortwill last if occasion, better; serve could discussions formal less times other 1997; end Korea necessary, may approach a crises, recent factor important such were information sectors in weaknesses because Fourth, all. at approached be not need creditors private perhaps early, sufficiently program IMF an enters Data Special IMFs Supervision. Banking on Committee Basel by defined banking, for those are best-known The information. provision the well as behavior, sector corporate and financial of standards international agreed meet countries market emerging encourage to underway now is effort commitment. useful second report mechanism stay condition greater crisis. lender country major

A institutions. prepared being also transparency monetary practice fiscal Codes operation. full into gone just has Standard Need On main regulations. bankruptcy standard markets, securities operation (IOSCO) Commissions Securities Organization accounting development process developed already important other Among Bank. World cooperation surveillance monitoring through part standards, banking improve undertaken will effort designed facility, (CCL) Line Credit Contingent established Board Executive 1999, April addition, followed. policies economic certain conditions subject Brazil, Russia, Korea, made been SRF rates penalty at amounts large loans short-term make (SRF), Facility Reserve Supplemental introduced IMF 1997, end At Resort Last Lender International Functioning Improving facilities. lending official design appropriate provided Further observance countrys recipient reflect could creditor regulators assigned weights risk instance, useful; prove further Nonetheless, standards. participation encourage suffice may suggests which Standard, Dissemination SpecialData IMFs subscribed market emerging leading most fact, In favorably. economy treat would investors hope efficiently more economywouldoperate expectation these any adopt qualify To crisis. external from contagion by struck are they event on drawn can that credit have macroeconomic pursuing must a in standards international meeting towards moving be or meet either sector financial assistance the come than rather pursue others incentives policies, good with countries for reassurance and insurance element an provide to intended thus is CCL The areas. of major line CCL, country strong variety

rules, resort, only act recommend Meltzer (1998) Calomiris arranged. been yet CCLs No SRF. those similar terms trouble. already Fischer Stanley example, For standards. relevantinternational meet depended SRF charged rate if desirable further It proposals. meeting towards way some goes CCL note like Iwould analysis,16 merits overall into going Without conditionality. without basis qualifying case.Loans any adopt areform operate allowed banks requirement conditions these Among system. banking importantly most requirements, set pay might at crisis (1873) classic incorporates Facility Reserve Supplemental under IMF funds. lender denied cases, extreme conditionality, policy tougher subject or rate, interest penalty interpreted can conditionality Policy rate. who creditors, regarded Bank World so. done rarely has but ask Fund permit Agreement Articles saved? times normal would collateral, good place take prescriptions about what But policymakers. countrys borrower viewpoint from seen as penalty, element main, That default. markets capital global access denying threat thus collateral their them, debt made payments claim remain lending collateralized While time. and full done, always almost repaywhich countries incentive andeffective, by saved bankrupt truly are which institutions prescription Bagehot general more The status. creditor preferred Funds given essential be seem not does it Fund, for a corporations sector private on claims have creditors foreign that extent To context. international in to difficult is resort last of apply should country debtor forthe rules bankruptcy the country, stiff nonqualifying higher first powerful possibility

standard develop underway now effort why ineffective, been emerging many regulations recognized has But relevant. Resort Last International Need On For code. more repayments generate ability debtor, status bankruptcy no There feasibility. economic political play further, considered are developed possibly Clubs, London Paris those including procedures, such discussed, As limit. without meant freely if freely, apply not does prescription Bagehot one role. Charging problems? deal manager an can How hazard.17 create long too delay frequently indeed IMF going avoid try Governments conditionality. policy requirements deterred already Borrower investors. than concern less borrowers but hazard, discourage help should interest rate over preside who policymakers hazardthat Investor Russia. countries crisis Asian witness office, lose generally IMF turn then a unwiselyis loan encourage would resort last financing involving methods adoption participants market self-regulation monitoring better encouraging by limit tend that system change most single The necessary. when bail-ins sector private procedures workout participate institutions their theresponsibilities recognize will authorities supervisory Lender banks. its protect tends and supervises which former government, borrower lender government much as lies hazard moral because lending unwise risk addressing responsibility however, credit, lines interbank crises. recent in losses large taken investors been, have they responsibleand held be needs investor example, for investment, equity case flows.18 capital international of types different with associated hazards the distinguish to important is it issue, this considering In concern. serious domestic sovereign matter sovereign, similar penalty

including standards, monitoring systems, rate exchange appropriate adoption transparency, improvements them among proposed, solutions constructive implementing developing start urgent It economy. structure weaknesses major revealed have five crises institutions. other lending cases implemented begun distilled should how principles general months, coming within analyzed experience crisis; countries several lenders seeking official present, At manager. crisis as function proper its perform able IMF found, involving ways Unless important. difficult; immensely here issues above, discussed Fischer Stanley chapter This Notes effective. more defined better both become will international implemented, continue changes these As months. twelve made been has progress Important crises. market emerging resolution financing sector private involve methods credit, lines precautionary development standard, A 1999. 3, January York, New Association, Finance Association Economic American luncheon joint at delivered I Finance. Series Princeton published was version a by provided pleasure support ago, years many question interest sparking Kindleberger colleague MIT my grateful (1984). Keleher Humphrey see resort, discussion historical an For sophisticated. remarkably also is resort last lender role analysis (1802) Thorntons Henry 1. Fund. members some they that said be safely may it indeed, Fund; Monetary International necessarily not author, those are paper this in expressed views The assistance. research excellent Adams Claire editing; his Taylor Timothy discussions; comments Williams David Wijnholds, Onno Spraos, John Solow, Robert Shleifer, Andrei Polak, Jacques Mishkin, Frederic Mayer, Martin Kenen, Kapteyn, Arend Kafka, Alexandre Holmstrom, Bengt Grenville, Stephen Goodhart, Charles Giannini, Curzio Fernandez-Arias, Eduardo Diamond, Peter Long, De Bradford J. Calvo, Guillermo Boorman, Jack Blanchard, Olivier Meltzer, Allan to paper; writing the during discussions helpful for MervynKing Crashes;to and Panics, Manias, of reading bankruptcy revised longer am fresh

paralyzed exchange down broken It harm. considerable worked centers different certificates clearinghouse issuing experience learn we lesson one The 1907: Schiff Jacob 134) quotation Kindlebergers note panics, clearinghouses approval pointed some Although 5. institutions. individual also necessary occasion than rather market lend rule advantage no sees he indicated has conversation, private 4. model arelated (1983). Dybvig Diamond reference classic behavior. herd dependent possibly equilibria, cases modeled can panics theory economic In 3. crisis. Asian context issues take Sachs Radelet Mishkin Jeanne Giannini Kehoe Chari Capie Calomiris include IMF potential discussions Recent context. lenders domestic discussion interesting provides (1985) Claassen (1999). Kapteyn Wijnholds (1982), Solow (1983), Mundell Meltzer 1978), edition first (1996, Kindleberger Tirole Holmstrom Lacker Goodfriend (1998), Huang (1995), Goodhart (1988), Plautz Garcia (1999), (1986), al. et Benston years, recent role analysis develop build sought who those Among 2. Resort Last Lender International Need On event only as act central argues (1988) Schwartz Accordingly, 6. country. business extent response needed financing any why arises question course, Of 7. currency. into banks from intervenes resort indeed, sector; public costly be ultimately need all Not 8. economy. system banking on effects adverse mitigate want may authority monetary answer applied. strictly are board currency rules if shock advocacy Bagehots attributes 191) p. (1945, Mints 9. information.) Ingves Stefan colleague my indebted am (I criterion. this meeting close have 1990s early crises up set were agencies restructuring bank Norwegian Swedish both Apparently repaid. its when ahead out come expect should it situation, stabilize manages under panic financial is, other; each accompany typically drains view his a develops (1999) Freixas 10. Bagehot. consistent that reading draina internal would freely lending gold, drain external stop designed rate interest high country. leaving gold accompanied often was standard (1986). Kenen to due is analogy The 12. (1998). Zettelmeyer (1998) Velasco and Chang see context, international an in equilibria multiple with models For 11. resort. last of lender the by ambiguity constructive for case large run pure theoretical

but architecture, international evolving role important plays element control. under stays denominator ensure also need countries debt; short-term ratioofreservesto ofthe numerator text focus 14. lending. usable practice Fund held currencies weaker since smaller, lend resources availability effective billion. $300 approximately are quotas Total 13. Fischer Stanley 16. (1998). Brown Gordon speech alsothe Crises.See Group [G-22] report developed is possibility This here. it pursue not I 18. loans. crisis size optimal determine however, not, does say To 17. discussion. earlier noted were which IMF, by out carried functions other undervalues grossly or overlooks either resort last lender only operate should suggestion that record A Street: Lombard 1873, Walter. Bagehot, References point. this emphasizing King Mervyn grateful a Blueprints Charles. December School, Kennedy at delivered Speech Economy. Purpose Public Rediscovering Gordon. Brown, Fund. Monetary Washington: Manager. Crisis as IMF Tequila: to Suez From James. Boughton, MIT Massachusetts: Future.Cambridge, Present, Past, Banking: Sound Safe on Perspectives 1986. Kaufman. George Kane, Edward Horvitz, Paul Eisenbeis, Robert George, Benston, Sons. Clowes William Market.London: Money Press. Cambridge England.Cambridge: 1944. John. Sir Clapham, 217237. pp. Archiv.121:2, Weltwirtschaftliches National Context Function Lender-of-Last-Resort The 1985. Emil-Maria. Claassen, 326. Minneapolis,pp. Bank Reserve Federal Report Annual Region,1998 The in IMF, about Questions Right Asking 1999. Kehoe. J. Patrick V., V. Chari, City London: Resort? Last Lender an be there Can Forrest. Capie, 15. Paper Working Economics, International for Center Maryland University Crises. Market Capital of Varieties 1995. Guillermo. Calvo, IMF. the Reforming 1998. Meltzer. H. Allan and Charles, Calomiris, School. Business Columbia York: New Unpublished; Architecture. Financial Global shall note am Description

a but None Enemy Curzio. Giannini, Ballinger. Cambridge, Resort. Reserve: Plautz. Elizabeth Gillian, Garcia, England. Ambiguity. Creative Conditionality Policy, Out Bail Optimal Xavier. Freixas, 401419. 91:3, Economy.June, Insurance, Deposit Runs, Bank Dybvig. Philip Douglas, Diamond, November. 6796, NBER Crisis. Asian Velasco. Andres Roberto, Chang, Resort Need On A Palgrave: Theory. Contract Hazard, Moral Actions, Hidden 1987. Roger. Guesnerie, 539560. Papers.47, Oxford Separated? Be Supervision Functions Should Schoenmaker. Dirk Model A Huang. Haizhou E., MIT Massachusetts: System.Cambridge, 1995. E. A. Charles Goodhart, 99:2. January, Paper Working Richmond, Lending. Central Commitment Limited 1999. Lacker. M. Jeffrey Marvin, Goodfriend, Function. on Perspective All? to Friend Institution. Brookings Fund.Washington: Adjustment, Financing, 1986. Peter. Kenen, Publishers. Academic Kluwer Future.England,C.,andT.Huertas,eds.Boston: for Directions Policy Revolution: Services Financial Runs, about Truth 1988. George. Kaufman, Fund. Monetary Washington: Unpublished; Architecture. New Mismatch Liquidity Olivier. Jeanne, 275321. Journal.4:1, Cato Perspective. Historical An Resort: Lender 1984. Keleher. Robert Thomas, Review.February,61,pp.29. Economic Richmond Bank Reserve Federal Resort. Last Lender the Concept Classical 1975. Thomas. Humphrey, 140. 106:1, Economy.February, Political Journal Liquidity. Supply Public Private 1998. Tirole. Jean Bengt, Holmstrom, 241257. 45:3, School.September, Manchester Problem. Bagehot 1977. Fred. Hirsch, May. 151, Finance.No. Essay University Princeton Context. International an in Function Lender-of-Last-Resort The 1983. Herring. Richard Jack, Guttentag, Press. Macmillan The London: 646651. pp. II, Volume eds. Newman, Peter and Milgate, Murray John, Economics.Eatwell, of Common Dictionary

A Crashes: Panics, Manias, 1996. Fischer Stanley Fund. Unpublished. Issues. Some Lending: Crises Jeromin. Zettelmeyer, June. Fund, International Unpublished; Lender. Indispensable or Resort IMF: Kapteyn. Arend Onno, Wijnholds, Publishers Kelley M. Augustus A.,ed.Fairfield: F. Britain,Hayek, Great Credit Effects Nature into Enquiry 1802. Henry. Thornton, 13:2. June, Minneapolis, Region.Federal Hazard. Moral Managing Gary. Stern, Policy.NewYork:Cambridge History, Theory, eds. Laffargue, P. J. P., C. Resort, Last Lender On 1982. Solow, Institute. Enterprise American Washington: E.Kushmeider,eds. G. America.Haraf,W.S., Services Banking Restructuring Net, Safety Stability 1988. Anna. Schwartz, 174. pp. Activity.1, on Papers Brookings Prospects. Remedies, Diagnosis, Crisis: East The Sachs. D. Jeffrey Steven, Radelet, 189210. Journal.3:1,pp. Cato Options. Monetary International 1983. Robert. Mundell, April. 7102, Working Research Economic Bureau National Crisis. Asian from Lessons 1999. S. Frederic Mishkin, Theory.Chicago:University ofBanking AHistory 1945. W. Lloyd Mints, Crisis.October810. Analysis An Asia: Conference: Chicago Bank Reserve Federal for prepared Paper Better? Be Would What IMF? with Wrong Whats 1998. Ballinger. Massachusetts: Cambridge, G.G.,andR.C.Kormendi,eds. Flux.Kaufman, Policy Public Services: Deregulating Policies, Failures Financial Allan. Meltzer, 1932). (reprint, Giroux Straus Farrar, York: Crowds.New Madness the Delusions Popular Extraordinary 1841. MacKay, Press. California University Berkeley: enlarged and 19291939.Revised Depression, in World The 1986. Charles. Kindleberger, 1978). edition, (First edition. 3rd &Sons, York:JohnWiley Series).New Classics Investment (Wiley Crisis Financial of History

before shortly written chapter This Introduction IMF, joining be role how show years: seven next somewhat evolved they if even change, did views basic issues several On there. a carry Camdessus (Michel operation. its principles guiding I, especially constitutionand Articlesits version pocket; his Thereafter legible. barely French discovered borrow asked I. important goalsis policy stability price reasonable growth out sets mandate, surveillance includes IVwhich Article argue used Mussa Michael Counselor Economic occasion.) an many on handy came version, English laminated own my around countries. developing poorest lending success about skepticism some successful; always, not but frequently, judgment stabilization, Fundslending central which area chapter, this pervasive is theme by self-evaluation greater time during made progress greatest revolutionary. 1990s half second transparency attitude Funds change The I while done was that bettersomething it evaluate assistance, technical importance potential 0 Fund. at paragraph. third-last in discussed as members, their all of interests represent truly more to Fund and Bank the for need knew would include baseline, dog-eared once carried believe

What Fischer Stanley story. part important an question, complicated story whole there opposition That with. deal developing powerful well, manage too would joint grounds Bank, between issues: onsome Ichanged strongly. very hold Iamnow. approvingofadjustableexchangeratepegsthenthan At makers. decisionindependent rather officials government level middle tend large Directors Executive Isaid Directors. views my inexpressing before meeting by me back quoted was Fund, fact, In quote. preceding implied than independence more demonstrated had who 0 Fund.1 effectiveness essential institution, successful joining Bank. World development, mainly problems whose academics among common quote lengthy following explained wrong, view think I all. poorest involved remain should whether question observers Some 2001. April Fund at a fact from derives Board Executive this cohesion strength Much countries. 183 active must First, reasons. compelling several welfare. social andincrease reduce possible, far as are, support we that sure make be likely these what know need We groups. different instance, policy, tax changes or expenditures fiscal Cuts uniformly. spread not effects its but everyone, ultimately Stabilization everyone? for good isnt all, After reduction? about worry others it leave stabilization macroeconomic achieve helping concentrate shouldnt But poverty. on policies impact analyze has them, lending those surveillance conducting So, debate. policy entire central is reduction poverty problem where countries, poor are to lends IMF the of Most obligations. and rights have countries member all which in institution said The merger position still Iwas Iblundered left veteran remarkably Before shared now talk gave disagree, universal

2 Chapter Introduction any In knowledge fiscal monetary bad high accepted generally now where get inflation about argument years taken has example, For place. structures institutional depends crisis: Asian during home driven was related closely Asecond, technical advice bases empirical analytical capacity, many also policies. impacts out figure government left can analysis, policy capacity have going a offer me let persuaded, who those poverty. war involved centrally should why basis intellectual That them. promote poverty, reducing effective most macro pro-growth We true. though even poor, good growth leave enough So complicated. growth between links growth. requires reduction sustained Third, done. gets needed ensure helping for responsibility avoid nor needed, ignorant cannot assistance. provide bankswill development regional Bank World otherssuch institutions, developing help Typically, effect. into goes program when do what country advise how know needs staff foods, basic poor access health, unemployment, impact adverse I 1. Note direction. same considerations both establishing worth morality, than realpolitik grounded arguments with comfortable more people since But do. thing right it policies: macroeconomic aspects poverty focus reason another there course Of poor. damage supporting seen lending our finance that countries public enjoy IMF Second, impact. distributional their of account take need sustained, support stabilization want we if So, equitable. broadly as perceived are they poorif or rich countries, all sustainablein be not will policies First, argument. pragmatic and website. Fund available is which Board, the to speech farewell 2001, 30, August my in length some at point this on Similarly, well-developed particularly political expanded

last Funds then. since responsibility effective no had 1973 disappeared system rate exchange peg adjustable police up set Organization. impending later, fifty until reappear stillbornnot Organization, Trade institution, 1944, Woods Bretton operates institution neither though even true remains This system. monetary postwar bulwarks three two as designed who fathers founding foresight testify economy world roles central Fund Monetary vitality Fischer Stanley Fifty at IMF a become Increasingly 1977. country industrialized income usually are disbursements net IBRD; quarter third amount IDA made commitments loan years most In countries. poorest terms lendsonconcessional Association(IDA).IDA Development 1960 Statesin United initiative creationat through then and countries, sector private finance helps which (IFC), Corporation Finance International affiliate, an 1956 addition first design, original beyond grown Group World markets. capital international bonds own placing directly, them lent rather it reasons good for obligations, their guaranteeing countries developing funds channel would Bank thought Originallyit design. itsoriginal to closer remained IBRD The economies. planned centrally formerly reforming mission new by revived been has but crisis debt the during rationale its losing of danger in was that one agency, development high specialized

plays IDA IBRD. exceed some IBRD, those half Fischer Stanley are:2 issues big Among futures. major discuss institutions, performance natural after years Fifty 1988.1 set was (MIGA), Agency Guarantee Investment Multilateral affiliate, Another countries. poorest lending continue enabling role provide? Bank? provided services so, roots return monetary responsibility IMF requiring instanceby for beredirected, goals lender? 0 them? responsibilities division sharpening reduced activities overlap also There merged? Fund years. fifty past over reforming evolving been Fund, course Of banks. with interactions its enhance how field, people put downsized, it Bank, case in instance, For agency. each about questions specific more A economy. international run help up grown blocs trade Community, European OECD, banks, development regional G-24, G-10, G-7, agencies, UN FAO, WTO), become (soon GATT them among groupings, interlocking is there exist, should whether why ask account, into organizations these all take economy world review a Such goals. their achieving way chapter this In 1944. rasa tabula near than rather current starting made be that improvements best system, present like look not assume safely can we which up, ground from designed structure institutional optimal an between distinguish have would I twins. Woods Bretton of functions relate they as only institutions agencies other to refer IMF, and Group Bank World on narrowly, the describing by key Is demand If project Should host full better focus start

sections Bank. operations functions, initial Fifty at World IMF The operation. modes about suggestions make questions 3 go functions six sets Monetary International 1The 3. section concentrate should Bank structures familiar Readers above. out set issues discuss constructive. generally convertibility promoting role but India; such account accepting too Fund; institutions other owes expanding Progress country utilized routinely indeed are countries;3 developing many even reduced greatly countries, major disappeared essentially have thatperiod; year every almost output than rapidly more expanded Trade 1945. since areas these several progress substantial been has There Agreement. its I Article IMF, Purposes 2.1 Table consult countries an (i), clause specified as serve does extent, through cooperation (i) Agreement Articles . trade balanced expansion facilitate (ii) problems. monetary on collaboration consultation for machinery provides institution a establishment assist (iv) depreciation. competitive avoid members, among arrangements orderly maintain stability, promote members. balances disequilibrium degree lessen duration shorten above, accordance In (vi) prosperity. international or national destructive measures resorting without balance their maladjustments correct opportunity with providing thus safeguards, adequate under them available temporarily Fund resources general making by to confidence give To (v) trade. world growth hamper which restrictions exchange foreign elimination the and members between transactions current respect in payments of system then considerable permanent multilateral (iii)

G-7.4 by consultations through elsewhere, However, Board. place takes issues financial regular serious forum problems. Fischer Stanley expectations strategy debt devaluations as such Some public. from its much too keeps frankly, speak freedom gives this While Discussions decision-makers. independent officials government level middle tend large Directors Executive Fund, outside decisions big Because negotiate. group unwieldy within available made countries, Developments Recent on reports including discussions, majority great prepared papers background confidential. remain haveto becomeself-justifying, can change But follow. certain knows it where lead cannot thus represent; governments confidence retain needs Board, controlledby ultimately Bank First, noted. considerations Two problems solutions proposing identifying initiative taking be management whether issue There exception. rather rule should information provision public publication forward, step important an represents Outlook Economic World Publication countries. member discussion policy economic quality enhance This discussion. Board weeks have not may Second, views. G-7 prevailing acceptance passive Quixote Don playing between leadership space deal monetary reform instance for Consider a return like probably would staff Ultimately mission. Funds central which system. international SDR role strengthen to anxious generally also Fund The now. are they than coordinated more far become economies of structure and policies unless course commend experience European recent does nor soon; direction in move will countries major the that prospect no absolutely is there but system, peg adjustable or surprise, few solution. topic fixed

serves While Fifty Bank World IMF Fund, structure now Turning time. policymakers G-7 advice confidential what know do we have, may he Indeed, earlier. moved could succeeding, Baker 1986 by many obvious Since working. was clearly strategy when strategy, official ahead get so dissent his timed case, 1989. Plan Brady led that approach attitude change general contributing bluntness, increasing with out speak began Director Managing Then 1987. least until 1982 from line policy G-7s followed dutifully then form helped first crisis, debt In reform.6 monetary area contribute little appears staff time this Thus system.5 current role expanding favor argument persuasive any not account, unit composite resources, demands relative size its appraise difficult it However, go. agencies international as large billion, $140 assets total With 2.3. budget administrative 2.2, table presented is sheet a only borrowers, countries . $1.40/SDR. rate exchange an calculated SDRs; data *Original Report,1992,p145. Annual Monetary International Source: 141.8 Total 3.3 5.3 Other 2.6 loans 3.6 a/c disbursement 5.1 Gold. 5.2 Borrowing 1.0 holdings SDR 127.7 Quotas 129.8 securities and Currencies Liabilities Assets billion)* ($ 1992 30, April sheet, balance 2.2 Table Funds 1 ($49/oz). SDR/oz 35 at valued renewed. be expected but 1993, December expire set currently are 1962. since existence in been have which Borrow), Arrangements (General GAB the under borrowing of billion) ($26 billion SDR18.5 to access potential has also Fund The lending. SAF for available funds contains Account Disbursement Special Facility; Adjustment convenient simplified subset Gold Structural

advanced perenially which sales, attraction also resources. borrowed $26 Borrow) Arrangements (General GAB access potential but assets, scale relative small been by borrowing members: lending own entirely almost relied has Note borrowed.7 available be likely $1.40/SDR. an calculated SDRs; specified data *Net Report,1992,pp.143,146. Annual Monetary International Source: 451.0 operating Net Income 355.1 Total 38.9 Other 7.5 Communications 18.3 processing Data 54.4 Travel 236.0 Personnel Expenses million) ($ 1993 30, April ending budget, administrative 2.3 Table Fischer Stanley make paper on would oz, SDR35 valued funds:8 shortage some running as thought generally is Fund oz.9 per at gold all sell could it if billion $30 gain a million, $350 1992 year financial Administrative ship. affect domestic that argument On members. its policies rate exchange over firm exercise to IV Article under responsibility from derives term Surveillance 1.1 training. assistance technical lending; system; international countries member economies the analysis and surveillance activity: lines main three in deployed are resources expenses. covers amply income net Funds The costs. percent 15 accounting travel with personnel, for were expenses these Most 1750.10 about of solution capital tight staff

support commended, been ministry) finance bank central (the other agency one leaked uncommon macroeconomy.11 thorough only, but best, only not well may smaller country varies exercise importance year. second every or annually either These economy. data-packed, informative, competent, ahighly provides typically resultant policies. macroeconomic range full cover members annual conducts rates, exchange Fifty at Bank IMF That countries. developed attention receive consultations view. within available them making towards work countries, industrialized developing reports influence increase To debate. policy domestic improving contribute could analysis Funds because Once country. report timely agree discussion public informed value sufficiently enough self-confident some find now even possible It issues. wants what say manages (WEO) Outlook Economic World acrosscertainly gets message basic ensure should quality professional exists, danger While reports. frankness affect publication that argued be it doubt No written. being their a twice staff reports, IV Article addition In follow. will others lead, take Fund forum communitythrough international by expressed views fully consider member willingness more principles strengthening with do less has Surveillance effectiveness the 15): (p. Report Annual 1992 in issue this quoted Board The exercises? analytic surveillance these effective How time. time from discussed also are topics special on papers Staff transition. socialist economics crisis debt as such problems systemic and individually, countries major of policies both economy, global discuss Fund for opportunity is This Board. to WEO the presents particular pity, short few year

absolutist too far However, multiplied. examples policy; monetary German effect visible partners wishes deficits; twin deal willingness States had seem G-7 rest complaints community. because economic basic change inclination overt little shown Powerful policies. structural their adopting formulating Fischer Stanley about bring facts brute academic dictated; would preferences longer alive ERM tried fact Germany view; issue keep helped deficit cut States United pressure international Continued impact. does shame,12 pointing exposure, twisting arm pressure, Peer crisis. problems, systemic policies country impact no therefore exercises Funds argue a there though regarded, IV Article Most regarded. well generally WEO presented. which forum much as have surveillance error. acquiesce than up speak better ineffective, were pointing finger if even And strategy. debt confidentiality. theshelter behind hiding while latter cannot It unit. such best be understood seen institution; macroeconomic premier worlds becomes goals: two pursue should surveillance, effectiveness countries. member policy analyze who others academics with interchange public more in engaging analysis further could The views. own for management backing receives enhanced, indeed is high, very remains staff quality analytic ensure has it do To policy. influence increase will Fund public, its making by issues, other individual objectivity, and quality, high unquestionably analyses presenting By authorities. of views the to responsive unduly are countries some on reports that position view

a For 1.2 Fifty Bank World IMF $1.40/SDR. rate exchange calculated SDRs; specified source *Data Report,1992,pp.74,102. Annual Monetary International Source: 82 indebted Number fund 2.3 2.1 7.5 CCFF 12.1 13.3 arrangements 37.4 Outstanding 0.0 Loan 6.7 repayments Repurchases 0.7 resources Trust 0.2 account disbursement Special 0.9 Loans 2.2 1.9 facility financing Compensatory 3.3 tranche first Standby 7.4 Account Resources General Purchases 8.3 disbursements Total billion) ($ 1992 30, April ending year 2.4 Table borrow countries poorest possible it make 2.4), (table small relatively ESAF under volume While loans. IDA for greater facilities these loans burden repayment IDA, than shorter much lending term since However, IDA. that similar charge interest an terms, subsidized highly at lend (ESAF) SAF Extended (SAF) Facility Adjustment Structural The provided. is assistance which forms different volume, both lending, on information provide 2.42.6 Tables somewhat. risen subsequently and 1990, through declined then 1985; SDR37 over 1980 in billion SDR10 from rising credit stock outstanding with 1980s, early of crisis debt during exploded Lending countries. developing to exclusively lent has Fund the decade

demonstrates if provided First Fund. quota percent 25 tranches four comes regular Access policies: Tranche Borrowing. Purchases: gold. holdings, SDR Funds currencies, country member holds that account Account: Resources General terminology policies, facilities, lending 2.5 Fischer Stanley a associated usually purchases tranche credit Upper without problem, its solve effort 3 generally programs, term medium provide These arrangements: 3.55 installments. Purchases criteria. performance specified program, economic countrys based member, loan negotiated 2 Extended 22 21 Standby outstanding Total 1991/92 Made arrangements Number 31.1 Hemisphere Western 5.6 East Middle 25.7 Europe 25.0 Asia 12.5 Africa region: By 0.0 industrialized To (%) disbursements total Shares 1992 30, April ending year lending, fund Details 2.6 Table IX. Report,1992,pp.5051,Appendix SAF. those conditions similar has 1987, created was This (ESAF): structural Enhanced 5.510 problems. sustained facing countries low-income programs medium-term support percent) 0.5 rate interest an (at loans Concessional (SAF): adjustment Structural member. control beyond factors from arising needs payments of balance temporary cover members Lends (CCFF): facility financing contingency Compensatory years. 4.510 over made are Repayments reviews. annual in on agreed be to changes subsequent with year, first actions policy and period, entire the for objectives out spells program The 7 1 SAF 5 Report,1992,pp.7274. Annual Fund Monetary International Source: reasonable standby,a na 8 16 CCFF ESAF

Fifty at IMF interest under period finance. development official form $73 billion,13 $131 amounted 1991 countries developing flows resource Net standby. make can true also It measures. adjustment proceed confidence borrower gives disbursed yet portion availability loans, significance understate However, 2.4. table seen $1.6 disbursements net scale which against loan big made it 1989 Argentina; $3 agreement extended an reached 1992 March instance, stabilize; decided come loans addition, In Fund. through than other not, or drawn whether size, Loans Venezuela. billion $5 excess on has criticism This contractionary. mindlessly being for criticized often policy, exchange fiscal, monetary, relates usually conditionality conditionality. with program, get trying only cases many Certainly basis. achieve needed ask economists Bank whereas availability, program tailors available are resources what asks approach, model gap twoBanks World stabilization, approach programming financial One late. very agenda Funds onto came relief crisis, debt during example, For unimaginative. too be may constraint description circumstances, some But constraint. budget its within living while macroeconomy stabilize say, Needless money.14 find out go then rate, a capture does time. over reversed) (though moderated this but operation, into went they year rate growth The significant. statistically not was effect inflation though inflation, reduce to tended deficit,15 account current reduced unambiguously concluded He 1988. and 1973 between programs effects evaluated (1990) Khan loans? Fund success of record is What institutions. two the affects that attitude in difference low longer normal base crucial stabilization reform case-by-case country target caricature, subtle

valuable extremely quickly funding amounts large move ability Further, productive. frequently developing activities thatthe Ijudge verdict, mixed very Despite Fischer Stanley underlying notion successful. many problems, structural deep-seated recorded Russia. yet may Poland, stabilize, seeking within corrected will There Bank. repaid effect loans quickly, equilibrium return did countries, indebted heavily some Africa, Because loans. term lengthen steadily had reason It these relevant not years, provides Assistance 1.3 Africa. lending pace slowed it as conclusion, drawn have seems itself activities. Bank World focus be should problems development long-run from away stay stabilization, macroeconomic short-term concentrate Fund case A Statistics. Legal, Affairs, Banking), Central (formerly Departments member was Technical economies. planned centrally formerly reforming years few last them majority abroad, conducted also statistics. finance government methodology, statistics, banking money covered Other adjustment. material admixture an with issues, policy monetary payments balance approach Funds i.e. policy, programming financial on are Most courses. part took participants 639 19911992, In officials. senior-level middle-and for Washington seminars courses regular runs Institute IMF The 16 members. its technical range a is this that suggests statistics 3 countries 79 person-years 68 19911992 in activity: Union. Soviet former Europe Eastern to sent been has assistance of Much countries. 37 Statistics 29 Legal countries; 82 helped Fiscal Department; Affairs Exchange and Monetary the by provided were organizations country standby, strong broad variety major regional

leave recipients time spend do republics, Soviet former regard levied, criticism One available.17 publicly Fifty IMF developing many Certainly systems. imprint least country remain who experts assistance, term longer therefore slower-growing contribute increasingly will agencies community It urgent. becomes capacity institutional impaired need all, slowly growing Africa, especially South others, growth, rapid fruits enjoying Asia population worlds much with tracks, two continues As hold. take teach they methods ensure try continue short-term, are problems whose countries lending back cutting should countries, industrialized lend now not does that Given partial. been best has each effectiveness Evaluation lending, analysis, activity, lines main three undertakes Summary 1.4 systematically. effects their programs evaluate begin priority make can it areas, both In assistance. activities, or surveillance its through members assist likely Fund future, Increasingly, 1980s.18 early than level a there high, be average appears contributions policy-advising analytic While system. international economies individual operation efficient to contribution encouraging by development reconstruction promotion on emphasis Fund. stated those crispness lack Agreement Articles out set as Bank World purposes The 2TheWorldBankGroup programs. assistance technical Funds of quality the about present at known is enough Not areas. these in daring and openness more for deep year, serious lower major

including purposes, facilitating territories reconstruction assist (i) 1965) December amended, (as Agreement theArticles ArticleIof IBRD, Purposes 2.7 Table Fischer Stanley members payments balances equilibrium maintenance trade growth balanced long-range (iii) resources. raised funds own out purposes finance conditions, suitable providing, supplement terms, reasonable on available when investors; made other participations means promote To (ii) developed resources facilities productive encouragement . performance economic improve changes policy investmentthough linked lending, percent 2025 accounting then 1980, introduced formally loans, Adjustment countries. developing sector support directly investments loans sector. investment most though encouraging development promoted said can it costs exchange finances since projects, been lending bulk great Since necessary. public but possible, if private investment, international 759760. pp. (1973), Asher and Mason however This Fund. those identical almost $140 shows 2.7) sheet balance IBRDs investment. foreign greater lead likely are Group, World value asset obtain added to have billion, $10 less assets, IFC $220 exceed IBRD/IDA that 2.8),19 (table billion $80 excess in assets has IDA for figure, a is IBRD Fund, with contrast By billion. $230 about were ago experi However, answered. be cannot portfolio quality or capital by provided guarantees from derives rating whether of question the so capital, callable than more borrow not does Bank The rating. AAA its guards jealously which borrower, country misleading year market (iv) (v) Source:

when immediately cleared certain made major bets, safe borrowers because This secure. quite portfolios their suggests years few last arrears institutions) financial (international IFIs ence b). ($42.9 undisbursed ($11.2 effective yet not minus b) ($154.9 approved loans *Total Report,1992,pp.198199. Annual Source: 0.4 13.2 17.1 2.5 91.7 5.4 earnings Retained capital Subscribed Equity liabilities provisions Loan-loss Long-term borrowing Short-term 140.4 10.1 100.8 29.5 Total Other outstanding* Loans collateral cash Investments Liabilities Assets billion) ($ 1992 30, June sheet, balance IBRD 2.8 Table 51 Fifty at IMF About behavior.20 good condition them help imaginative sufficiently been system system, into come want defaulters all end, system; international out stay cannot become also has It fold. returns country recalcitrant replenished being with wealthier donors, by contributed are funds These IDA. lending find have would 1973 in wrote Asher Mason a cycle year three leash short prefer clear it closure, struggles replenishment tenth now, but IDA, financing secure contributions. back maycut programs bilateral preserve seeking countries increases, budgets However, productively. used is that ensure try World expertize using countries, developing aid conditional provide for way efficient an of thought can IDA channel. Board regular through possible be appears than poverty and environment as such issues on effectively more Bank pressure to donors the enables arrangement present The cycle. formerly third longer

& subscriptions Member 29.5 23.3 75.6 balances undisbursed less Credits assets net Available Funding Resources Development billion) resources, 2.9 Fischer Stanley Less small. been far so repayments flow long-term, very Because Report,1992,pp.104,200. 1645.0 income operating Income 1074.0 (100.5) Reimbursements 269.8 113.5 Travel 791.2 Personnel Expenses million) ($ 30, ending year budget, administrative Table IBRD. Switzerland *From 220. Report,1992,p. Annual World Source: 5.3 81.8 52.3 Total credits outstanding Net 3.4 73.1 contributions* Other $2 will now, a at possible resources an made IBRD, profits with together reflows, These period. next relent reflows billion one SDR precommitted already Indeed, correspondingly. their reduce opportunity take do donors lendingprovided IDA in increase nominal than more from suffers establish to difficult be would does), it work for (presumably big too that impression general Despite smaller. relatively is budget travel its though Fund, of those almost are costs personnel shows, 2.10 table As employees. other 500 over and consultants, long-term 766 members, 6000 were there 1992 June In Fund. the members staff many as times three has Bank The risen. not have contributions donor direct when decade year,making substantial time

annum, per billion $20 lent recent In Lending 2.1 coordination. aid research, analysis assistance, technical lending, into categorized be can activities expenses. covers than incomemore Banks Fund, As economies. planned centrally formerly challenges expanded it though then, small kept size staff increases somewhat downsize did reorganization 1987 inefficiency. waste bureaucratic levels usual Fifty World IMF either maintain demands This forth. andso telecommunications, energy, education, industry, development, rural agriculture including headings, major 12 under classified are projects 222. 1992, 36 made Fund Whereas enormous lends 1965. India instance place, taken indeed had permitted, program although projects, all almost 1980, Through Union. Soviet former Europe Eastern up opening despite years, five past over increased barely has IBRD terms, real case also is It repayments large mainly 2.11). (table negative transfers while billion, $10 being 19911992 year fiscal smaller, been from net countries. developing resources flow relative amount expertize level access or areas, at borrowers needs responding form this justified The loans. disbursing rapidly lendingpolicy-based, introduce moved broke, before Even consultants. range declining, flows private when a have Bank conditionality since But G-7. by supported crisis, with deal needed was Adjustment America. Latin to disbursements percent 50 much as years some lending fast, disburse Because lending. bank share for accounted and crisis debt in role important an played loans adjustment 1980s During projects. its of outcomes affecting were that issues policies macroeconomic the about sizable high variety wide time way say

6 South 1.1 33 4.4 67 3.2 10 0.7 Number region Loans !1.9 transfers 6.3 Net 16.4 disbursements Gross 3.4 Adjustment 18.3 Project 6.5 15.2 loans Total billion) ($ 1992 30, June ending year lending, 2.11 Table Fischer Stanley 1 0.0 2.1 Asia Central Europe 17 1.6 America 8 0.4 37 5.3 & East 4 0.2 IDA 13 1.3 IBRD Africa 1988, September Argentina loan adjustment made urging, U.S. at when, open burst countries. member conditionality policy dealing itsprimacy establish sought Bank, larger much by dominated being fearful ever Fund, The conditionality. its with conflict potential into it brought role Banks policies, macroeconomic relate had lending Report,1992. Annual World Source: 222 21.7 a With lend. to willing not was when for procedures out set that 1989 March accord an reached agencies two preparation, crisis debt in Fund and Bank of roles the on report Latin Caribbean Middle North time G-10

lending,22 studies major three out carried growth. countries member affect ability depends importance potential case As cooperation.21 formulae right accord everyone work enough provided along came FSU Europe Eastern because may but then, since conflicts reports few been There Bank. Fund between policies macroeconomic long-term short-and responsibilities divided murkily conflicts, with dealing Fifty at World IMF exports positive an shown evaluations lending. effectiveness report) (the study important a loans, off pay left who borrowers given But reformed. needs evidence conclusive declined rates fact mere Thus into put can resources many percent, 100 less must projects optimal development. countrys contribution overall portfolio, entire new activities end. practices supervisory staff composition change beginning situation, remedy will Board promised management supervision. project attention inadequate economists) number increase excessive (equivalently expertize technical loss attributed 1980s. during 70 80 than from fallen had which success projects, saw trend quality declining critical was report Wapenhans alleviation. poverty directly well capital, human creation building institution such determined, market entirely are determinants growth longer-term focus also necessary or growth, restoration for sufficient mid-1980s, defined as adjustment, whether question shifted recently more have lending adjustment over Concerns investment.23 effect through only not activities, its evaluating engaged continually The avoid. Fund, including agencies, other criticism vulnerable it makes openness Banks that recorded be to has It front. this on resolutely moving in justified is Bank the and high, too seem does percent 30 of rate recent negative failure

put members. expertsavailable andmakesitsown (EDI), Institute officials country training provides assistance, finance lends Assistance 2.2 them. undertake required be Fund, including evaluations, these back scale not solution Board. directly Department, Evaluation Operations through but above, discussed those as such reports special Fischer Stanley Africa, were participants courses number largest participants. 2,900 over attended courses, seminars 117 region. each within networks creating part countries, institutions research up build seeking been also has It countries. developing from students programs scholarship major two runs EDI EDI. target given up, set was TA. support grant provide Fund Development Institutional establishment things, among recommended, UNDP. especially agencies, other coordination improve activities, Banks organize how recommending tasks specific effectiveness improving goal with charged (TA), examined force task A dissemination. policy, research, $90 spending shows budget The Research Analysis 2.3 activities. own studying type evaluation overall needs industry TA good, potential Given business. big Technical billion. $1.8 than more to amounted 1992 fiscal which credits, and loans provisions assistance technical total against pales This operation. year first its for million $25 a prepares Bank addition, In macroeconomy. analysis an by accompanied loan adjustment Each operations. course the in undertaken is countries individual on work policy of amount Memo Economic vast Country

I publication? this all How policymakers. researchers data well opinions staff outlet Tables,provide Debt such departments, out come publications Other agenda. policy internal set attention, worldwide receives Report Development journals. series paper working including outlets, research public.24 available reports information, project much work, analytic most makes now policy, disclosure public changed recently two every generally country, each randum Fifty IMF discuss meet for groups consultative chairs Coordination Aid 2.4 years. recent States United community academic impact an had developing many influential quite impression have but study, systematic no them lending donor taking IDA, also coordinates It aid. coordinate helps needs. those meeting contributions their pledge needs, program economic piggyback will Japan, especially Some coordination. form another donors with Cofinancing policy. by dictated fashion (out 115 was there 1992, year fiscal In negotiations. loan leverage loan, through provided increasing thereby a is function coordination The lending. amount doubled almost average cofinancing and 222), do activities that mean course not does This directly. sector private financing difficulty great has countries, member to loans its on guarantees government demands Bank World Since Corporation Finance International 2.5 resources. financial Banks effect in it as time same at programs aid national of effectiveness the increases which one, valuable know countrys coherent total highly

status anomaly Vice-President. Executive run effectively president, Banks shares Bank, affiliate directly lend up set was operation efficient crucial reformare trade sector, financial example Bankfor supported structural becausemany theprivatesector, development contribute Fischer Stanley involved typically year, per billion $1 less amount active. very being from kept not promoting devoted institution or having claim therefore can participation offered comfort want lenders sector many It indicates. operations own volume than effect investors others seen must presence IFCs group. had IFC protected. vigorously be will rights see shareholders Some increase. capital engages Summary 2.6 below. issues return We financing. their thecommercialmarkets moveinto graduate, borrowers as IFC, future larger provides good, average work analytic TA. theprovision changes recommended record its examined recently assistance, provider amajor declined.It has projects qualityof aperception but successful, been have whole on appears lending adjustment Its activities. range wide a While countries. donor service con for case any there whether question The sector. private by provided also is coordination aid except services these Each aid. coordinating in role important an plays Bank World addition, In assistance. technical provision issues; economic national and systemic of analysis governments; to entirely almost lending, functions: similar undertake agencies Both 3ReformsandaPossibleMerger undertakes. it that activities the are so organization, large public co-financier syndicate, member signal major much valuable

This peg. an maintain Developing strain.25 take rate let willing EC), within (except period flexible been rates exchange largely That 1977. since G-7 member any lent has Fund course, Of channels. through continue will likely Thus itself if leading see hard And leadership. official under always was but crisis, debt during packages financing participated sure, To imposed. noeffective governmentson doubtful diplomacy, gunboat decline given But I. War before Morgan House trouble major were large Certainly loans? make Could trouble. governments made definition by further, conditionality; policy come large, very frequently are IBRD.IMF between adifference where with start We provision. public tinuing Fifty Bank World IMF therefore loans, stabilization comfortof prefer clear It borrowers. conditionality imposing lenders difficulties The pricing. justifies which international externality there classes latter loans its mispricing ask we so, If all. at probably could cases some in market; than do cheaper it because must remaining Many markets. directly borrow decide may Thailand, thathavenotyetgraduated,suchas successful Even own. their markets capital the into go borrowing from graduate Korea, Japan, Spain, such Successful role.26 be then would There access. market easy achieved yet not have countries developing lend they when presence IBRD) or (IMF as borrowers, weaker to lending implies argument this though Note lending. sector private a possibly and lending, direct for role future certain whether on depends so is that Whether loans. IBRD of quality average need governmental case catalyst diminishing declining

as serve founders Banks view us returns catalyses unlikely. suggests literature convergence know, we which something grow, never doomed economies Fischer Stanley issue major role. expanding possibility exploring itself agency. express often lenders Private function. this again, Once price. unsubsidized pay prepared they whether seen Union, Soviet former from guarantees such I flows. capital international development speed stage early at Nonetheless, sector. public loans guaranteeing one mainly case sector, than rather governments relate advantages these Since 27 conditionality. impose collect ability greater involvement agencys lending, risk, political against example guarantee, form provide develop should IFC IBRD thus lending: on sum To agencies. both existence justify alone role see hard eventsthough unforeseen future capacity retaining argument crisis, debt role, emergency important an served Both years. ten five say period, also There members. now few so are there since particularly years, coming importance relative in decline likely However access. market have not countries lending loans, stabilization make continue Fund directly lead speaking, strictly not, here made arguments activities. guarantee its expand That better. job do would agency new existing some Perhaps Fund. Bank a up setting costs but possibility, much does, that doubtful is It feedback. information to access same had it if sector private done be could agencies by out carried analysis systemic and analytic The twins. street nineteenth of use continued the for argue functions reorganizing or organization guarantor wish limited theoretical

adopt need research,the carryingout all For organization. type duplicate hard unique, system monetary Funds activities generated data where organizations analysis doing advantages real There draws. which worldwide theory combination unique useful most what Fifty certain agencies. with people often sector by provided can Technical direction. moving been has encouraging information. on open example periods, long resident does staff IFI particular, In Institute. IMF EDI experience fruits bringing except area, this advantage I services. charging start until assistance providing continue IFIs whether judge possible will be still there guess poorer Fund, Without yes. answer all? exist agencies these Should many involvement deep reside information economies bilaterally, than through better probably it growth, economic foster provide industrialized extent To function. part as IDA identify should We activities. offshoot important, function coordination aid Banks World Finally, reputation). (or name brand because least at services, their for done yet have markets capital private shocks. process adjustment costly difficult more a plays Bank The system. financial international problems solutions suggesting analyzing lead take well-placed singularly also is It provides. Fund This presence. official an comfort want typically lend, do they when Even countries. of job it. like institution another invent would we Bank, the Absent analysis. policy research its and assistance, technical aid, coordinating credit-worthy, commercially not are that countries member to lending in role far natural year. demand much good valuable

needed. analysis clear conditionality why true, dependence. aid create adjustment, prolong theseagencies existence doesnt Fischer Stanley I But involved. had official sooner crisis debt exist, did they if even needed Iconclude agencies. without worse much been deepwould very was crisiswhich believe there view leads new setting costs transaction Combined activities. these providing involvement sector public continued There each? made reforms existence, agencies Assuming expand. function guarantee time, over decline lending possibility agencies, would G-7 wishes doubt No areas. key influence efforts, dissipates done need important, are topics both focus reason purposes. related inherently causes good similar environment, improving poverty, fighting World with compete trying stop means This elite. become elite, feels small, relatively policy. short-term countries, member system; monetary international subjects: main two stick for case That FSU Europe Eastern policy macroeconomic run shorton concentrates make longer-termactivities, fromits retreating seems them. offer something Fund evidence publication creation by earned be will role that interactions, own their a has Nonetheless, frequently. itself reorganizes Fund, than self-examination more in engages assistance. technical surveillance, through contribute can attention. Funds all needs which job, may It projects. quality the improve try continue course lending, adjustment up give not Bank The else. everyone so but do, sure less is it Africa, as such areas, some In well. out them carried have to appears recently until and be, should activities basic its what of idea also continuing strong crucial

did women poverty, environment, attention pay borrowers. well-equipped less technically by do Fifty at World IMF neglecting criticized when defensively reacting be, may whatever wave, next issuesto new looking general, is. ago years poorer assistance technical longer-term providing banks, regional coordination better missions, resident up building decentralization, some argument anyway. done tasks range immense on takes Bank. downsizing compelling no There governments.28 through rather public directly talking interactions, nongovernmental expand continue have will elsewhere, but States United only not important, become orgnizations such As countries. member groups interest domestic with involvement greater mean ahead Looking issue. popular spend staffers Fund) (and encouraging for case two or them give Certainly agencies. within development career as To unproductive engage afford cannot effective, management if management, must it anyone, directed appeal If rhetoric. pure criticism much members, real long-run view assert quite members Board country industrialized questions: complicated raises ask But institutions. role leadership part members; therefore truth fair obligation an has staff analysis, research its In appealing. sounds members. their all interests represent truly Fund that argued often Washington. from get likely are they than countries developing confronting difficulties idea a is That merged? agencies Finally, that. recognize practice in institutions both Boards extent, change. make costly extremely also It to difficult more and larger would institution merged The control. managements of capacity stretches Bank the Already rejected. be should which suggestion, attractive few newly good year considerable superficially

reject reason important most However, Fischer Stanley working street, across other, presence agency each main outsiders. disagree answers, right self-confident quite institutions both Staff goes. What countries. smaller powerful extraordinarily now Bank Both powerful. too institution successor make would I comments. Hagen von rgen Ju Steinherr, Alfred MaxSchieler, grateful Iam Notes scrutiny. public wider far individual policies proposed regard even agencies, arguments analyses subjecting strengthened, be it And place. remain should check That quote To 7. do. others say This 6. economies. socialist formerly reforming or African indebted heavily funds, aid need aspecial meet suggested often issue An 5. directors. executive ambassadors as such representatives power reduce tending power, centralization increased have travel communications cost declining 4. 1964. obligation Nicaragua example joining; after times violated clearly on 1987. since list joined Turkey, Thailand, Portugal, Korea, Indonesia, Nine, convertibility. account current obligations VIII Article Funds accepted 43 including countries, 71 1992, 30, April As 3. (1993). Polak (1993), Neu (1989), Finch (1986), al. et Feinberg, (1987), Vries de (1990), Dell see Bank; IMF survey 1991 Economists The discussed proposals related and issues these Several 2. active. very been not has 1966, up set Disputes, Investment Settlement Center International ICSID, 1. Bank. World Linn Johannes by suggestions greatlyfrom benefitted sheet balance The Polak, Jacques . tabulation above discussion also See 8. meaningless. economically but correct technically is which currencies, called being creditsboth new give ability with credits outstanding mixes a finance holdings gold its ounces) million (25 sold 1975, In 9. issue. SDR gold. subscribing when received had they price at countries member to returned was one-sixth another account); disbursement special 2.2 table in recorded are fund that from resources (the members country developing of benefit the for Fund merger similar letter curious potential Trust It

due description This 14. IV. Chapter 1992) Paris, Co-Operation,(OECD, Report, Committees Development Data 13. Goldstein. Morris second Polak, Jacques phrase quoted first 12. data. collect incentive main constitute may requirements data Further, 11. economies. membership expansion with deal 2100, grown had staff 1993 By 10. Fifty at World prepared Department Affairs Fiscal 17. 114117. Report,pp. Annual Funds here provided information 16. year. program beyond extended evaluation period when only significant statistically becomes payments, improvement show Khans 15. staffer. A Policy: Tax Assistance Technical See legislation. embodied advice extent discussing impact assess attempts provides, Fund types summarizes work, assistance technical review likely there However 18. 1993. August WP/93/65, Paper, Working IMF provides (1993) Polak 21. fold. return defaulters incentives therefore IFIs, default ageneralized costs fear countries industrialized be would interpretation Another 20. such. sheet balance describe careful IDA Note 19. stabilize. begin economies planned centrally formerly reforming lending inFund countries. some preferable is rate exchange floating than rather peg adjustable an argue also one view, support To 26. Italy). (e.g. system European within been loans Stabilization 25. project. approved has Board afterthe public become reports Project 24. efficient. more investment made have must policies adjustment that arguing results these reconciles Bank 23. respectively. 1992 1990, 1988, published studies 22. essentials. its differ not does which but Fund, viewpoint from seen as largely dispute, account detailed need referring by make a absence equivalently or governments, defaulting penalties impose lenders private of inability on turning up ends thus argument The 27. authorities. fiscal and monetary self-discipline provide anchor I 28. crisis. debt international the in discussed were issues These governments. for mechanism Linn. Johannes to point this useful Review, bulge nominal bankruptcy owe

a G. Margaret Press. Locks Bank.Washington,DC:Seven Remaking (1987). A. Barend Vries, de Bombay. Lecture, Annual Exim 1990s, Tasks Reforming Sidney Dell, References Fischer Stanley ( Papers,37,2 Staff IMF Programs, Fund-Supported Effects Macroeconomic Mohsin Khan, University. Princeton Section, Finance International 175, no. Finance, tional Interna Essays Prospect, Record (1989). David Finch, Council. Development Overseas Decade.Washington, Next Banks Worlds: Two Between (1986). Richard Feinberg, 12. October survey, Wood, in Sisters (1991). Economist, Fund. Monetary World.Washington,DC:International Paper22. Growth.PolicyandResearch Resources Public Private Mobilizationof (1992). 14. Growth.Policyand Sustainable for Policies Lending (1990). 1. Paper Series Research Experience.Policy Years Ten Evaluation An Lending: Adjustment (1988). IMF. mimeo, Coexistence, their of Future IMF: the Bankand The J. Jacques Polak, Rand. CA: Monica, Woods.Santa ANewBretton (1993). R. C. Neu, Institution. Brookings DC: Washington, Woods. Bretton since Bank World The (1973). Asher E. Robert and S. Edward Mason, Changing June),195231.

delivered chapter This Introduction again, Once role. exposition devoted half first crisis. Asian controversy height during 1998, UCLA at I noting argument, organizing for basis Agreement Articles contains also lecture gravity. center Boards beyond far too move Board, chairs as but enthusiastically, fact, itin supported and publication increased trend welcomed management noted As market-sensitive remove are report version published permitted only so do want taken was decision project, pilot experimental an following 2000, In discussion up summing Chairmans PIN, allowed were members made been progress Some report. consultation IV Article annual publish countries allow agreed not had still IMF Board Executive lecture, time At II. War World end since system financial global in changes profound purposes original its close role Funds thatthe there Iargue Articles.1 amendments several despite unchanged essentially stayed a There information. revealed if lose it which information, access privileged has staff because is The crises. with public go should whether issue thorny prophecies, self-fulfilling became these If wrong. be could Fund the that namely crises, impending of warnings issuing over hesitate to reason important, more use second,

caused Fischer Stanley occurred. otherwise lecture, half second prediction. certain virtually it public, go occasions are Asia. programs Fund-supported criticisms some correct. large currencies defenses rate interest countries agreed point countries. crisis policies nuanced more within reversed these emphasized, However, strong.2 Asia adjustments initial we work. stabilizers automatic allowing essentially deficit, fiscal cannot months contains impact. reforms, corporate especially programs, included central defense so, may program. Indonesian much too probably there concluded staff analysis Later growth. revival essential were hazard, discussing In corruption. support criticized been would issues, those addressed program Indonesiaand corruption elements well-known squarely aimed conditionality structural detailed since Indonesia, situation impossible I issue interesting an as existence Specifically, explaining. trouble had only true This provide.3 loans Funds crises costs reduction benefit against balanced needsto hazard moral flowscreatedby capital distortions cost marginal Rather crises. should imply not does has lending Fund reason For equilibrium. steady-state its system behavior about but basis, a with ends needed. when involvement sector private ensure found be have methods scale, eventu The Congress. U.S. by consideration under increase quota for case make to intended also lecture paragraphs, three last from clear As 6. chapter in length greater at discussed is which and agenda, on high then was that topic architecture,a financial international reform the of believe turned argued widening few significant strong argue grappled result case-by-case limited discussion

3 Chapter Introduction a shift 1970s, early system Woods Bretton ofthe thecollapse placefollowing took changes significant most 1. Notes crisis. Brazilian round first Management Capital Term Long failure by created alarm and crisis Russian after only was but 1998), October (in voted I Obviously 3. 2000. Holland, NorthPolicy,No.53.Amsterdam: Public on Series Conference Carnegie-Rochester Asia, East Experience The Crisis: Financial Managing al., et Boorman instance for See 2. 1978. ratified articles, to amendment second embodied are They currencies. major among rates floating crises. of costs the reducing in effective is lending Fund that here assuming ally am

debate ensuing Fund. attention unprecedented focused have funding Congress Administrations crisis Fischer Stanley Crisis Asian revealed also spotlight But governments. member accountable held institution process part searching 1973, breakdown end at rates exchange fixed manage established was stated often Fund: On Asia. recent monetary role both relating misconceptions, critical a II, War World after up set system economic international founders foresight remarkable testimony purposes initial with consistent closely current Nonetheless, in1946. beganoperating since adapted evolved course The I argument. hazard moral lending sector private excesses future seeds lay lenders unwise out bail activities its Fund; from assistance financial request reluctant increasingly countries making thereby economies, borrowers excessively intervening remedies; austerity traditional applying Fund Affairs,that Foreign issue 1998 March/April Feldstein Martin others among charged, been it In period. year fifty previous any than people prosperity growth more produce helped has which available; easily too not and policy on conditional be should lending growth; return sustainable for necessary are programs IMF by supported economies these changes structural countries; individual of circumstances to appropriate is Asia in advice macroeconomic Funds the that argue healthy number rationale. will

occur, inevitably withthe dealing crises preventing ways better find communityneeds though, true, be always will It losses. large taken have crisis Asian lenders most hazard, moral marketsproduces insurance provide does financing backstop provision IMFs insuranceand any existence while that Fischer Stanley I Article set are primary Organization. WorldTrade became later much what Bank, World Fund, Monetary International up setting proposed they end this war. outbreak Depression Great contributed had collapse whose system, economic rebuild was 1944 Hampshire New Woods, ton Bretmet who countries 44 representatives goal Role Purposes agenda. now architecture changes discussing briefly conclude through cooperation include: They years. fifty past over unchanged essentially remained charter, income real employment levels high promotionandmaintenance thereby contribute trade, balanced expansion facilitate problems; monetary collaboration consultation for machinery provides institution a establishment assist depreciation; competitive avoid members, among arrangements orderly maintain stability, promote . transactions current respect system century. twenty-first verge on valid remain purposes original its changed, too IMF time. test stood Woods Bretton at out laid approach but 1944, since prosperedmightilyandchangeddramatically has economy The prosperity. international or national destructive measures resorting without payments balance their maladjustments correct opportunity with providing thus safeguards, adequate under them available temporarily Fund resources general making by members to confidence give To and trade; world growth hamper which restrictions exchange foreign of elimination the in permanent multilateral ;

a or G-7, example elsewhere, from come may initiative Often Fund. Governors constitute who governors Bank Central Ministers Finance Board,1 Fundby decided needed, decisions when and, generally are system functioning organization relating Issues consultation. forum premier countries, 182 Fund, Cooperation Crisis IMF APEC. organizations, Gs G-7 meetings briefings provides economy, continuous its Drawing developments. market world regularly reports addition, In report. Markets Capital International annual Report Economic semiannual Board, discussion after published, surveillance s The economies. individual developments governments member thus Board Executive staff surveillance,reportingby consists does what Much on.2 go will goes list crisis; role their funds hedge activities decade; this economy theJapanese long-running unfortunately Standards; Dissemination Data General Special Funds led which data, provision public quality crisis, following initiated effort, ongoing Bosnia-Herzegovina; standards; banking improve attempt Bank); cooperation close (in countries poorest problems debt Russia; transition, in economies assistance financial technical crises; Asian Mexican IMF: by Bank) World twin, non-identical Woods Bretton our especially institutions, other together (often acted usually discussed been has years recent problem economic major every Almost discussion. basis forms analysis prepares Ph.D.s), with them of (450 economists 1,000 including staff, professional TheFundshighly operational. suggestions these make examine to used problems monetary international on collaboration and consultation for machinery provides that Fund the is it but government,

once Approximately Fischer Stanley government presents mission end at website. available published been have period, during discussed IVs half economy,about information containing Notices) Information (Press PINs 60 far So discussion. summing-up Chairmans do want allow agreed year last However, published. frankly problems discuss willing would say governments most published: track. off with programs whose difficulties facing on regularly reports addition, policies. improve colleagues encourage seek policymakers process, this Through country. makers policycriticalto viewsencouraging conveys Board paper, discussion performance. policies economic countrys analysis in-depth country, each for Report prepares consultation, public make moving membership Funds gradually, Thus, so. doing number increasing statements, these publish wish, they if may, Countries report. IV Article conclusions foreshadows generally statement concluding The views. summarizing statement, when so, does When crises. prevent help should problems, providing By inflows. capital private sustainability systems, domestic their strength countries, member from receives it data timeliness quality factors, other among to, attention particular paying surveillance, its broadened strengthened IMF Mexicancrisis,the thewakeofthe especially years, recent management. by welcomed a averted that taken givenand were whichFund cases many there noticed be to unlikely succeeded has averted, is badly subsequently countries several in weaknesses sector financial about also staff taken. action but crisis impending an of Thailand warned Fund crisis, Asian In anticipated. not was problem the or notheeded, and given are warnings because either fail, may surveillance But year, trend crisis.

act ability access Funds First, difficult. factors Two fears. went mitigated, least or prevented, suggested Many forecasts, economic quality effective make seek crisis, lessons drawing In widening produced effects contagion virulence foresee failed But crisis. hit Crisis IMF particularly think reason good information, such absent public; information made if lost governments advisor create concerns going could Second, sector. public therefore is so. do it require purposes so, done always has It countries. lending its through both liberalization, directly, The Trade International Promoting crises. prevent surveillance strive even deal capacity improve continue shall we heeded, are warnings all case any because reason, For missed. crises impending Some perfect. ever will type this forecasting illusion no there crises, potential forecasts to As assumed. be lightly should responsibility happeneda not would otherwise industrialization import-substituting controversial, time one was Although measures. conditionality including arecriticized programs Asian our a establishment (the services goods on exchange foreign toliberalize encouraging indirectly, international promotes Fund important, Even economy. world into integration and liberalization trade benefits established conclusively evidence, econometric formal more well as experience, weight prescription, for currency their convertibility full allow they that certifies which Fund, with status VIII Article accepted have countries member 142 now by but II, War World end the at pervasive were controls These transactions). current respect in payments multilateral of confidential task crisis surprise popular system

within status VIII Article moved transition Remarkably, transactions. Fischer Stanley years, well took which advanced todays many with assigned IMF principle In 1973. until lasted II up set pegged Currency II. War World end after restrictions these rid get system after. immediately approval seek devalue practice changes, approving role stability, promoting a search are year last late 133 1995 spring 81 yendollar those such Fluctuations rate. stabilizing goal economic subordinate willing Unionare Monetary European members future thatunlike for available alternative acceptable floating proponents by expected fluctuated Japan between particularly major among Exchange system. flexible amore but choice no was objectivesthere domestic focused mobility, capital fixed incompatibility result viabilitya its lost it Once A recommendations. policy motivate still rates, changes implications systemwide charter, Funds reflected devaluations competitive over crisis. currency contributed dollar appreciating ASEAN most The line. out move threatens when policies macroeconomic adjust least at or peg rate form some choose either tended rate, behavior ignoring luxury have not do Japan, Europe, States, United than economy international on dependent more Smaller agenda. return bound stability promote way rates exchange strengthen then stabilize first need stressed reason one is This included. countries developing countries, other of economies damage to as large surpluses account current and undervalued so become would currencies that fear been has crisis Asian the in concern Fund few contrast decade means goal. better

like much operates known best is assistancethe technical provision, information activitiessurveillance, other Despite Lending appreciate. begins stabilizes currency until rates interest cut purpose, this crisisand Crisis Asian size shares. voting subscribe, they determine Members conditions. necessary meet need who loan then are which Fund, deposits placing countries union, typically but reflects, amount now Total economy.3 world role economy thesizeof increase, request Administrations both present at it before Congress $14.5 nearly amounting share Statess billion, $90 about percent, 45 increase agreed members 1997 September In 1978. dollar defense recently most times, twenty than more tranche its drawn has States United andthe tranche, accesstotheir automatic virtually lending. used quotas all not means This currency. own countrys paid can remainder Right; Drawing Special currencies major five any tranche) reserve so-called (the quota their percent pay have Countries billion. $200 from borrow IMF allow (NAB). New contribution U.S. billion $3.5 event economies strong with participants 25 When 1960s. established Borrow Arrangements General under resources doubled NAB resources. quota-based regular short runs if available could that financing backup provide thus would It system.4 monetary international a approaches crisis in reform strength on largely based Board, Executive by taken be will country support whether decision The adjustment. of costs social regard careful paying growth, equitable sustainable for conditions lay and stability macroeconomic restore program economic an negotiate to seeks Fund the credit members lag, bit group risk member loan,

Agreement. Articles bythe required safeguards adequate constitute conditionality, procedures,especially agreed.These conditions meeting on conditional each installments, tranched,paidout undertake. willing Fischer Stanley Fund. from borrow need led remedy they appropriate, Where inflation. reduce growth, help payments, balance viability restore designed reversed expected can related, payments purelybalance problem cover time, speak careful itself program, IMF usage, common Despite countries. other sector case also loans. Bank World period during financed reforms include typically arrangements extended Such sector. energy agriculture, markets, labor pension system, such measures, structural changes, policy fiscal monetary along contain, cases, these In four or up for policies covering longer, last arrangement with, deal longer take deep-seated are problems countrys When years. five within concluding years three after starting repayment with because But wanted. initially than more do ask usually will Fund negotiations, loan course, Of out. government its one country, should Ideally program. out, carry intend agreed have unless succeed unlikely a reform favor who those used being rarely, not happens as if, divided, if especially judge, difficult be may The office. into came programs, out carrying committed strongly governments, new when around turned both markets financial Thai and Korean experience, Asian recent by reinforced conclusion signeda has it which program economic commitment governments degree is agreement any evaluation the in element Although oppose. colleagues their of some that changes implement to Fund-supported short year, Fund-supported key vehicle

supporting more economy, onacountrys imposing communitys international as press program aFund-supported Crisis Asian typically reason main unpopular? so then why But growth. term longconducive reforms economic desirable about bring wants a generally A unpopularity. contributed well may programs attended recently until secrecy The programs. Fund-supported during begin growth defeated hyperinflation seen them among popular, where there this, all Despite off. some gains immediate losses made, structural Similarly, act. when blame convenient finds responsibility, than rather knew government Probably costs. short-termpolitical changes undertake or means within live requiring essence unpleasant, be usually will Rather ago. long taken would country tasty, had crisis cure medicine If earlier. action take unwilling having transition difficulties; protracted low-income also problems, payments balance temporary economies industrial only circumstancesnot problems diversity greater facing countries array wider ever an assist advise upon called years over it changed, purposes While IMF Economy World Evolution Fund. welcomed change publishedanother has program, describing Fund management letter its Intent, of Letter governments programs, Indonesian and Thai, Korean, Recently, outsiders. by affected way any were policies impression give disliking Fund, with agreements their publish reluctant been often have Governments benefits. longer-run promise but short-run the in difficult are measures support to likely less why, nor done, being is what know not does that group crisis, result public

create demonopolization deregulation some society; members vulnerable most reform adjustment impact tocushion nets safety social affordable adequate resources; national waste mistakes avoid corporate government accountability transparency increased many; expense few benefit projects large build-ups military costly by out squeezed not education health spending so expenditure, public quality improvements systems; Bank, World together generally pressing, degrees different Thus, contribute elements include broadened increasingly, marketsaspreconditions andopen policies, fiscal prudent money, sound on focus primary maintained course, Of development. human economic rates high maintain needed inflows capital secure seeking countries emerging economies; market full-fledged infrastructure institutional struggling Fischer Stanley establish led face membership diversity Finally, enough. go failing nations, sovereign affairs domestic as see they what far too intruding either IMF, criticize roundly others But growth. sustained stability way stand countries, many that, issues governance problems tackling applaud Some reactions. mixed with met has concerns policy IMF scope broadening This activity. sector private field playing level a but programs, longer-term finances also (ESAF) Adjustment Structural Enhanced structural macroeconomic deep-seated more overcoming at aimed programs four-year three-to supports (EFF) Facility Extended deficits, payments balance cyclical or temporary finance help designed is months eighteen twelve lasts usually that arrangement standby traditional addition In members. its support financial provide can Fund which through policies and of array The problems. particular address to established been have facilities new history, IMFs the in times other At countries. low-income for rate interest wider concessional

just this corollary level. international cooperation monetary effective level national policies sound emphasis remains feature important One transformed. completely Certainly, changes? effect net What Korea. SRF under borrower first charges. normally than higher loans short-term large make Fund allows possible: soon return incentives strong providing while marketconfidence, crises facing economies market emerging assist 1997 December created was which (SRF), Facility Reserve Supplemental these recent most financing business, daily mostly, but believed, commonly as management, into evolved origins, simple relatively from however, acknowledged, also must It surveillance. multilateral has growthit stability for requirements prismthe same through its all look continues if even So fulfill. tasks complex institution questions many Among IMF countries. member distinctive 182 possibilities problems spectrum full way on focus doingso, Affairs.Before Foreign Feldstein Martin them among critics, by raised been have programs IMF-supported nature about issues crisis. origins discuss briefly I saying beyond dead, miracle Asian whether question with detail any deal not a within that not, is it 8 to close averaged Thailand) and Singapore, Philippines, Malaysia, (Indonesia, ASEAN-5 growth GDP Annual performance. outstanding decades several backdrop against unfolded Asia economic The Crisis of Origins average. world above well rates at growing be again once will crisis in now countries two or income capita per crisis, preceding years 30 during Moreover, decade. last the over source mechanism cooperative differentiated set believe year percent

left 1990s beginning since Japan Europe weak particular, crisis. buildup significantly contributed markets global advanced Developments sharply. deteriorate portfolios loan banks quality permitted oversight rules prudential lax Third, corporations. institutions financial risk foreign exposure excessive turn, led, borrowing, heavy encouraging long, too maintained regimes bubbles.Second,pegged stock property deficits large form region countries other evident increasingly become overheating signs First, horizon. on problems there Nevertheless, 1996. billion $100 countriesnearly developing inflows total half almost attracted Asia current And countries. industrial Western some exceed now Singapore Kong Hong income capita per Indeed, Malaysia. fourfold fivefold Korea, tenfold increased levels Fischer Stanley 1996, early Beginning predicted. timing, exact if crisis, Thailand, case In years. three previous over rate exchange yen/dollar swings wide contributing Also risks. potential regard due without investors international yields high for search imprudent along phenomena, these degree important an driven were trade, carry so-called including markets, emerging flows capital private Large low. rates interest kept economies those opportunities investment attractive a after action, policy convincing absence Finally, problems. countrys severity about denial sense their overcome pressure market increasing nor authorities dialogue continuous neither 1997, July floating up leading months 18 following But pegged. baht which to dollar U.S. weakness growth economic rapid masked been had then, until that, economy Thai vulnerabilities revealed shocks external and domestic would when, or whether, certainty predict not could vulnerable, extremely was that knew we While crisis? impending fears its with public gone have IMF Should broke. Thailand in crisis bank, central by currency the of defense shortage confluence desperate

before wailing sirens flashing lights with brigade fire like scene arrive For strike. actually Crisis Asian provoking risk would occurs began experience after pressure downward competitors, trade Thailands competitiveness erode expected be could baht behavior. rational reflected Some relentless. appeared region economies contagion hit Once success. without actionbut forceful timely, take Thailand convince possible everything did staff management that, Short occurred. never exceeds place taken depreciation degree rationally, behaved participants individual if even pressures. rate exchange intensifying thereby liabilities, external hedge rushed residents go, process this far how Fearful slide. continued currencies increased sector costs service debt this, Added particularly as were countries, different degrees differing saw, And countries. neighboring Korea, problems at look face overreacted. markets bluntly, it put To currencies. other among won, Korean rupiah, Indonesian baht, Thai overvaluation correct required been might what estimate reasonable any margin suffered all Moreover, sector. private domestic borrowing foreign unhedged excessive systems, financial weak depreciation, currency deep confidence, market loss including problems, similar 5 differences. similarities these reflects Korea Indonesia, Thailand, supporting design The support. requested when crises respective stages deficits account current their size initial notably ways, important in differ also But it. defuse efforts complicated crisis contributed both has which banks, and business, government, between ties about transparency on controversy considerable sparked programs a from suffering countries dispensed inappropriately medicine, austerity IMF old same merely are they argued have some First, issues. of macroeconomic restore than more do to attempting by that criticism the is Second disease. closer wide number lack These range

corporations. banks weak complicate costs higher even temporarily, increasing requires turn, which, currency, hold attractive make this, achieve To currency. restore is, still was, business order depreciated. excessively was rupiah Indonesian low, perilously were Korea Thailand reserves IMF, approached recall important question, this weighing In Tough? Too Programs Are lenders. commercial regards especially hazard, moral questions troubled are people Third, protection. environmental rights workers areas such reforms further tackle failing enough, intervening criticize Yet choice. absolutely they before assistance for coming others discourages Fund so, doing by argued it Further, handle. country left should matters inappropriately intrude programs governancethe corporate improve systems financial restructure measures instance balancefor Fischer Stanley months currencies on attacks off fended have which all Russia, Kong, Hong Republic, Czech Brazil, experience recent well 19941995, America Latin tequila lesson lower operate not Why levels. normal return restored, Once measures. policy supporting other along tightening forceful This devaluation? more suffer stand have, these many so as debts, foreign substantial with companies country, first Looking system. international and individual viewpoint both excessive, countries crisis Asian devaluation degree that question no can there but tradeoff, a from currency their of value slide had decisive if than larger far be likely situation stabilize needed rates increase the Thus, erode. to continues confidence delayed, is action rate when Moreover, rates. interest domestic in rise key timely greater relevant steep temporary

indeed good devaluations, excessive are authorities intention by Although deficits. run requiring other positions competitive damaging those surpluses lead will Asia devaluations system, international viewpoint From perpetuating beginning forcefully rates tighten reluctance Indeed, outset. taken Crisis tightening, degree appropriate question On prevent. seek obligation devaluation type crisisprecisely spreading running been had which Thailand, important factor programs, Among crisis. at them concentrate rather time over spread attempt an This corresponding regionthen some estimate realistic GDPa 15 is up cleaning cost example, For costs. capital not intervention, interest expected include programs sector offset tightening calculating In deficit. reduce situationto payments balance on depending and restructuring, financial costs future for budgets room make both positions, their firm needed crisis, outset At one. fine 8 about 3 deficitthe account current large its reflecting Thailand 1.5 Korea GDP; percent one was Indonesia adjustment amount The cannot fiscal level However, operate. stabilizers automatic is, that somewhat, widen deficit let with agreed generally countries, three it as expected, than more weakened country situation economic if adjustments, initial After GDP. a since particularly indifference, countries Asian persuade need IMF does Nor circumstances. these disastrous potentially be would money printing of alternative the and borrowing to access limited only has typically crisis in way matter

a insisted government countries, crisis two prudenceindeed, virtues Fischer Stanley measure particular inclusion ask whether deciding apply questions three proposes Feldstein Martin accomplished. bankscan recapitalization including this all how determining account into circumstances country individual course, Of supervision. improve steps losses, take shareholders require depositors, small protect insolvent close recapitalize course best The shown. Japan experience problems, economic perpetuated only This later. solution leaving forbearance, regulatory support urged we restructuring: banking quickly too move encouraging accused been Similarly, returned. half-hearted, or incomplete perceived efforts reform where skeptical remained have markets aside: governanceissues thestructural leave countries Nor addressed. were unless countries lend IMF for purpose lasting any serve would It country. theeconomiccrisis theheart corporations) banks, governments, among relations nontransparent complicated supervision, regulation bank inadequate institutions, (weak deal they problems programbecause heart lie reforms structural other restructuring sector financial Rather, Korea. Indonesia, Thailand, programs element main adjustment Macroeconomic Policies Structural strengthen. continue currencies market if down come begin could rates interest Korea, Thailand success signs increasing showing are policies these Moreover, be. should it as That work. their do allowed being subsequently stabilizers automatic with program, each of start at excessively not but appropriately tightened was and currency, in confidence restore tight kept be has monetary that is critics to answer macroeconomics on Thus, suggested. had Fund the than policy fiscal tighter

Crisis Second, Asian case markets? capital access countrys restore necessary really First, reform Banking interference. improper or technical, what definitions accepted no have we complicated,because government? asovereign jurisdiction proper unnecessarily interfere not matter fit accept willing apparently criterion policy deficita budget size issue, technical on intrusion an less any programsis part long liberalizationwhich trade clear program. had changes similar ask appropriate it think would Europe, economies industrial major practiced were policies Third, not. Asia but acceptable, Asiaare controversial inmany structural, detailed, more far Russiawhich including economies, transition Fund supported programs explain Feldstein does Nor reform. sector banking than government here answer program? financial provide community international excuse nor point neither There crisis? causes underlying address program this Does asked. should question important most omit criteria three Feldsteins are, Interesting yes. these course, Of programs. Fund-supported inclusion reason fundamental That crises. future prevent measures takes country unless a include typically Asia, those as such programs, longer-term for framework overall why is which Bank, purview are many implement, time investors rescue, come second, and trouble; serious into get if out them bail there be will know they because risks excessive take may countries member in officials first, parts: two argument compass. political points all from heard been has hazard moral creates IMF crisis, countriesin assistance the coming by that charge The Hazard Moral issues. structural with deal to loans Bank World of highly sovereign straightforward series

strong, may crisis. present during actions preemptive evident thingindeed, incentives right provides conditionality regard, politically. survived trouble whose individual Nor Fund. going avoid best shows evidence All badly. things them save net safety IMF because so action course arisky embarking policymakers think far-fetched It economies. weak lend accurately, appraiserisks bother even appraiseindeed do Fischer Stanley I But later. rather sooner come willing generally it Feldstein Martin paid concerned more others risks; appraisal inappropriate hazard moral problems point tend Economists investors. side arise issues thornier The markets. private role resort; first lender Fund: access easy too believe not a for protected were market, inter-bank lending notably creditors, short-term Some share lenders domestic bankrupt, go unfortunately institutions financial firms Many year. turn since better done on hold courage with sure, marketsthough, some holdings value quarters three nearly lost 1997 end had foreign plunging, rates exchange markets stock With banks. corporations lent who those many investors, equity applies This losses. heavy very taken countries crisis Asian Most facts. First future. should than careful less will then inappropriately, our investors if coin: same sides two are These lending. Fund by out banksmay refer they typically Further, week. this earlier completed successfully having loans their lengthen and over roll operation in,with bailed been now have banks creditor largest, is exposure bank where Korea, of case the In over. rolled be continue would credits these ensure to aimed policies that in agree penaltyand while,

need, We behavior. rational encourage information provide everything Rather applaud. something This exist. did even IMF, creation predate reactionfar excessive an representing sometimes but fact foundation some lacking really depression, also exuberance confidenceon swings based Financial exuberance. irrational answer it? what crisis, underlies unwise led hazard mainly was question: remains there unwisely. lent been, They hard. hit Investors rescue. come because their risks about worry from conclude investors surely it. dealing mind, borne always exists, It hazard. moral problem deny None banks. commercial foreign costly been has crisis overall, that, indicate reports earnings fourth-quarter crisis: damage avoided have banks extent exaggerate should Crisis Asian build cannot But systematically. more sector bail ways find shortly, with faced are which at times There happen. will assumption Here overreact. markets when help response, part The prosperity. international or national destructive unduly measures take countries force crises respond capacity system need we Thus confidence. investor loss devastating potentially flows capital reversal I lendingand role briefly discuss like on bailouts issue awayand give does repaid, gets money lends IMF When level. fundamental a sense meaningful any not is have. would otherwise they than better do thelendersto someof and corporations, its country, residents means That faces. inevitably country that recession moderate helps represents it sector, private for incentives wrong the creating possible far as avoid to designed properly if Rather, crises. future in sustained be can type this of lending provided massive emphasize bailout,

denied protracted, workouts 1980sis period inter-War experiencefrom problem, rider free obligations, sovereign include generally involved debts given cases, such with dealing procedure bankruptcy accepted an absence In moratoria. debt defaults practice. so rarely but simple, sounds debts. service inability countrys out sort creditors leave abolish who proposed alternative sectors. between burden sharing finding part lending, scale limit priced, properly risk is, lendingthat private unwise discouraging ways find system, architecture improve seeking means rising, keep not does loans Fund size required sure crises, future sustained type ensure To overreacted. appear conditions handoutsin or grants lendingnot rational Fischer Stanley time,at only lost access market 19941995, Mexican contrast, By togrowth. cost returned Mexico months, within back be Thailand Korea both likely quite crisis, present Similarly, markets. capital international tap ability its assisted impressive avoid help tried IMF reason second The year. this later begin will expect which recoveries, their for well bodes surely months. believe, continue believed, We contagion. of fear was a at country, one soon. resume can economies those growth been, individual crises as unfortunate deep that, believe reasonable is it contained, has crisis that do But crisis. Asian the lending official no been there had what know cannot we course, Of not. did Brazil, by action courageous prompt due but, October in happened nearly That continents. possibly and countries other to spread have would sensitive, highly were markets when long significant year few standstill time

when systems response capital, flows regulating monitoring arrangements prevention specifically system, architecture focus Now market. was emphasis Mexican effectively. handled can occur crises ensure crises, future probability reduce done needs what reflects community crisis, every After System Financial Architecture Crisis Asian a there First, prevention. points five make me Let occurs. Many agenda. sure warnings, issue if information, whether discussed, question, sustainable. inflows capital policies, with consistent regimes rate exchange countries Fund, supplied being relevant all things, other among ensuring, surveillanceby Fund effectiveness enhance found ways second, Thus, system. international surveillance sector private official indicators, into research through meaning read ability our means intelligencewhich human processed are until information provide do recognize data, timeliness quality, coverage, work time same At data. short-term improve hard working already Settlements International Bank The corporations. banks, exposures, debt term short timely more need we present from clear It knowledge. public been had did they long as continued have could crisis recent in instrumental were that banks activities off-balance-sheet some governments, policies also but decisions, investor informed better only not lead should provision Better banks. central transactions forward on providing by instance for standard, strengthen necessary be will it disclosure; fuller transparency greater toward move countries encouraging is IMF Standard, Dissemination Data Special Through public. data comprehensive and accurate, timely, of flow the increase to

up setting consider suggested monitoring, convincingly written who Kaufman, Henry effort. critical exposures debt short-term data better provision spots. trouble potential identify seek actively, far flows needstomonitor continue. trend happening, itself. at transparency greater requires functioning efficient argued Fischer Stanley disseminate helping direction working been has The systems. domestic strengthen done more much them, intensified or sector problems provoked often crises since Third, this. one another do institutions short not but purpose, institution then participants Market accounting. including governance, corporate trading, securities codes, bankruptcy as such markets, financial operation smooth needed areas adopt encourage possibility One countries. market emerging advanced both operate, markets way improve we Fourth, regard. role important an play will surveillance IMF subscribed. they which meet ensure help monitor mechanisms develop needs also But important. extremely effort standard-setting year. last introduced principles, core twenty-five Supervisions Banking Committee Basle codified are These others. adapted can some well worked have that so area, banking practices best find need system again Once decisions. their making for basis is this and standards, implementation monitoring neither means This prudently. handled should accounts countries opening Fifth, standards. with borrowing compliance reflected countries lending in regulators bank by applied loans international on weightings risk if encouraged be would standards these Observance task. a nor controls, capital pervasive risks; the of regardless liberalization, immediate full to separate set clearer formidable return rush

so liberalization, careful sequenced properly Crisis Asian balance macroeconomic particular, In access benefit can countries number movements liberalizationof willmake charter amendment work at accountthe liberalization orderly encourage processto facilitate To liberalization. successful prerequisites well-supervised finding given thought Considerable markets. emerging circumstances special fit Facility Reserve Supplemental tailored also weeks. two than less approved signed, negotiated, Korea program allowed initiative streamlined, situations dealing procedures internal IMFs Mechanisms, Financing Emergency creation Through response. direction taken steps Some Fund. crises resolution involving find needs code, or court bankruptcy equivalent need we them among suggestions, many been have solution. easy no there which crisis, Mexican after discussed intensively was issue question, bail-in waythe authorize perform cannot apparent should Finally, country. originating contained as spreading thus others, from outflows capital lead country one solving sector private involve effort that possibility contagion, dangers mind bear important suggested, may solutions Whatever continue. must problem ways search but area, this problems legal formidable are There crisis. external an payments stay a provides doesit us, all like and shortcomings its has if even But be. precisely what issues, these with deal decide will how seen be remains it board, drawing on still is system of architecture new The Congress. by considered being now quotas IMF increase particular including resources, adequate without management prevention crisis in role financial and economic global address to community international the for framework larger strong purpose mechanism timely way temporary central flexible

half than more established institution IMF, strength source That managing burden fairly sharing alone, resolve ofindividual capacity exceed problems Fischer Stanley again achieved, goal period, long this during steadfast Under war. depression systemravaged economic an restore help ago A shares. 18 holding currently with Fund, share its proportional vote Each several each constituencies, into organized chairs other 16 countries; own only represent countries, largest those Eight countries. member 182 representing by appointed Directors, called members, 24 has Board Executive 1. 1998. 20, March UCLA at Lecture Funds Forum as delivery prepared paper This assistance. Hansen Elizabeth Mary grateful Iam Notes indispensable. remains leadership U.S. purpose yet, better do can we But crises. evident been costs outweigh far world around States United standards living improved benefits Its system. international global a now not They Thailand. were crisis Mexican wake in up set it when NAB joined Among 4. quota. countrys relative big so was Korea loan 1997 November that reasons one quotas, low relatively have tend countries fast-growing lag, Because 3. (www.imf.org). website Funds on publications activities Fund about Information 2. decisions. major for required is percent 85 web-site. IMFs via available publicly are commitments and objectives program their outlining intent letters recent most of texts full The 5. Fund. the lend to century truly majority position

written already Columbia Calomiris Charles business. do institutions) financial (international IFIs ways changes recommendations make expected Institute. Enterprise American University Carnegie-Mellon Meltzer Allan Professor chaired Congress, report Commission, 1998. October reached increase quota agreement part as up set was Commission Advisory Institution Financial International Introduction I testimony preparing In automatic. virtually would trouble, into got country aprequalified If system. banking strength especially criteria, specified meeting loans prequalified had should lending Funds bulk arguing IMF, Reforming IMF fact overlooked frequently emphasize . Fund. future interest have members All valued. promoted long States principles economic sound dedicated universal nearly with nature. its mind bear important it IMF, considering [I]n testimony, early plea Hence States. United imposed simple any cannot membership, by agreed be has which reform institution, a seek far quite go willing change seeking and Board, Executive forced rarely very are decisions that means, works. institution way to importance fundamental is Fund nature cooperative The through views their force simply not did transparency greater of favor in countries the why instance, for explain, helps It issues. many compromise means this Inevitably issue. an on consensus paper, wanted Board .

once Board Fischer Stanley agreed but second, And century. twentieth half last prosperity unprecedented contributed all interests ones, are charter economic principles thatthe First, testimony. ofthe start at points bullet first summarized points, other two wanted Ialso with. dealt could transparency greater opposed those concerns whether see experimentation Article words is, It lender. testimony, countries. advanced including members, countries, member economies economy global undertakes lending, addition problems. monetary collaboration consultation machinery provides institution permanent a Agreement, Articles members among sector macroeconomic good promotes community international through mechanisms effective most one The argument activities. lending much twice spends chapter, out pointed As members. provided assistance technical advice, policy surveillance useful examples several this loans, prequalification benefits emphasize right were Calomiris Meltzer Ibelieve deeply. funds IMF obtain prequalify To role. prevention crisis Funds enhancing crisis, happens, often more now as advancerather in system financial policies strengthen a surely That they after them manage than rather crises prevent resources its using that mean occurred. already has I CCL, about optimists even But it. redesign try willing may seems and Fund, books on still is The flaws. design to due be must This CCL. for takers no been have there However, prequalification. of notion embody does which facility, Line) Credit (Contingent CCL up set Fund 1999 In idea. the become ever would it believe not did one, majority, period give way future country better was

4 Chapter Introduction event in rates instance CCL, up signing created need incentives that, Recognizing prequalified. have founder leave not will community international trouble, into get when because is That lending. vehicle prequalification, through done lending Funds most recommend did Advisory Institution Financial International The Fund. facilities using than countries CCL lower significantly be a they members, by made on comments report from clear was it needed, were reforms major further believed Commission while But testimony. my end near covered them some reform, Fund for recommendations other itself. reform to seeks continually and experience, recent of lessons the studied has seriousness, appropriate with role its treats that institution predominant crisis series necessary

. institutions. reform discuss today withyou meet opportunity gratefulfor Iam Introduction Fischer Stanley Commission Advisory Institution Financial International Presentation IMF: Role I IMF. role focus course points: main four make like subscribe IMF, joining create helped has application devaluations. competitive avoid convertibility, currency trading open desirability andreasonablepricestability, promote include The members. pursuit on legitimacy confers This interest. mutual their are that economic operation about principles century. half last economy world prosperity growth unprecedented than more much it lending, through well assistance, technical surveillance Through lender. world. around prevention policies macroeconomic good force plays also 0 out. carried function this way changes some for clear made have crises Recent exchange. foreign need temporary lender crisis limited, necessarily a in functions out carry to better modernized, and reformed being IMF crises, these wake of component essential an as governments member 182 its all almost regarded still is Fund the But flows. capital private scale large by dominated system financial international changing would set period powerful role, In rapidly will

I Article Purposes established. carrying capable remains ensure important be will institution, reforming So system. Fischer Stanley create purposes: out sets constitution, institutions appendix), (see IMF Agreement Articles half more they indeed are today Our Fund. founding changed not article this wording prosperity. or national destructive measures resorting without difficulties payments balance adjust them enable countries, safeguards adequate under lend convertibility; account current devaluations; competitive avoid stability growth; economic employment full thereby trade, growth promote problems; monetary consultation find struggling rates, pegged Woods administer up set was said sometimes It ago. a on representatives their through governments accountable countries. member 182 represent who Board, Executive members 24 exist relations working cooperative enhanced Its responsibilities. accepting rights same enjoying everymember with membership, universal nearunderpinned legitimacy Funds efficiency. accountability, legitimacy, combines structure governance effective evolved, designed IMF, The members. down laid originally faithful remained so, doing In flows. capital private increases massive wellas as Woods, Bretton collapseof after countries major among rates exchange flexible towards shift true been This economy. international changes effectively adapt ability demonstrated has institution that, than broader always were Fund purposes But 1973. collapsed system that since itself for because part in efficient it And public. general to decisions and activities its of transparency growing the by strengthened is which permanent century role discipline

prospects. surveillance there First, ways. several do We members. among sector financial macroeconomic good community international mechanisms effective one Policies Good Promoting world. around promotes policies produced growth from benefited States, including members, future interest All valued. promoted long States United principles sound dedicated membership, universal nearly institution It nature. cooperative mind bear important IMF, reform considering In operation. say greatest have most which ensures voting Weighted necessary. when rapidly very act can Fund ensure helps This small. relatively remained Role present These authorities. consultations regular our through undertaken this policymakers, countrys options situation view A changing. management support But, published. were recently, Until policies. economic economies appraisal professional virtually they many And countries. individual developments basic Fund, members other valuable are governments. member Funds thus on commented that a has also Surveillance Fund. effectiveness increasing means essential an right; own its desirable only not IMF transparency growing The investors. potential actual information providing well debate, policy domestic contribute would Publication reports. IV Article their countries allow to whether considers it as Board Executive by evaluated be will and way under now is reports these publication study twice-annual publish we level, global At unions. monetary African West or European of institutions the with dialogue in example for dimension, national highly pilot regional

This crises. into escalating problems prevent help can Surveillance annually. published Report Markets Capital International Meeting. Hemisphere Western APEC such meetings, meetings Ministers Finance G-7 situations regional or world appraisals present weeks. few every Board brief Outlook Economic World assessments Fischer Stanley you give me Let them. lending necessarily countries advice policy valuable which cases there But notice. without pass usually successes while everyone, obvious are failures supervision, As task. thankless, often but examples: resolve procedures, surveillance strengthened our under Swedish worked we mid-1990s, securing important particularly was cooperationbetweenthe crisis. process. bring they because part value continues Canada mid-1990s. consolidation fiscal aggressive embarked when useful very options budgetary its analysis IMFs found government Canadian current analyses. other most than experience cross-country informed better developments global sensitive more Palestinian helped develop Authority helping now The accountability. budget transparency encouraging instrumental policies banking on guidance provided We scratch. from procedures administration 0 strategy. a stability financial establish and policy, economic repositioning them assist frameworks, macroeconomic their assess this authorities by asked has Fund consultations, IV Article regular addition time, time From Pacific. economies afield far as places valued is assistance Funds management. monetary methods market-based adopt to region in banks central small of many impossible been have also would it Fund, the with relationship supportive ongoing an Without flows. aid for vital, In deep strengthening perspective medium-term precondition

absence its but granted, infrastructure type take advanced capacity. effective help borrowers. them all not banks, governments provide surveillance, addition Second, Role you give me let Again, countries. member good hindrance examples: data their presentation quality upgrade market emerging industrialized have (SDDS), Standard Dissemination Data Special associated technicalassistance Through policy-making. monitoring economic foundation essential an economies, transition statistical modern up set Bank. Reserve South case led Community, Development African Southern countries systems payments regulation, areas providing is provided recently systems. reporting accounting, transparency, several for directions identified It management. expenditure public reform facilitate Chile mission 0 policy. monetary mechanics policy fiscal such areas, other also introduced. was board currency system health restore supervision, banking strengthen Fund system, financial countrys collapse following Bulgaria, implement develop authorities organize helped we example, spring,for regime.Last played We world. around from targeting inflation on experts gathering Brazil, Bank Central a make assistance better. work made canbe regime sort this onhow ideas exchange banks central with relationships close maintain Colombia in role technical and surveillance resources staff many as twice than more devotes IMF The community. policy-making outside recognition sufficient get rarely members,but our by appreciated greatly generally are They economy. world of well-being the to contribution critical few In sound seminar similar valuable

loans. attach conditions through good promotes importance. appreciation public also effectiveness only enhance should surveillance reports IV Article publishing towards trend increasing spent. well money time this view, my programs. operation does it as together, taken assistance, Fischer Stanley I Before lending. crisis our shortly turn but difficulty economies; transition post-Communist initiative; (HIPC) Countries Poor Heavily-Indebted receiving those including poorest, countries: categories three distinguish useful It financial may we loans discuss like play measures anti-poverty direct cases countries. indebted heavily scheme reduction conjunction introduced been recently (PRGF). Growth Reduction Poverty now (ESAF), Facility Adjustment Structural Enhanced under originally terms, on poorest lends crisis. proven has ownership Country them. ownership, hence support, widespread stakeholders, relevant with widely consult expected governments member programs, preparing lenders. IMF, Bank, World role programs PRGF initiative, HIPC enhanced context In organizations. by supported efforts reform stabilization success determining factor Such viability. medium-term ensure they assurance creditor aidthe other countriesin assistance amounts large providing community international since Second, efficiently. used need available resources few where countries poor very in essential more resourcesall of use efficient necessary stability First, reasons. two least at for needed is that certify to have will assurances. these provide help IMF The environment. a make not might country the Otherwise provided. lending concessional new or granted be can relief before satisfactory are policies macroeconomic reduction. poverty and growth sustained into problems debt its from exit would central vital framework stable countrys lasting

coordination Close Role type, precedent little there Although organization. other any task procedures reinvent have would review. periodic boards, approval discussion then country, agreements discussions policy missions, preparation, proceduresprogram institutional rightcombination they importantly, More resources. because part only role primary given institutions Woods Bretton investment. private encourage effort strengthen Development Reconstruction assistance. providing assisting asked were sector, official Within support. world rest turned economiesofovertwenty-fivecountries, transform which situation unprecedented created Bloc Soviet collapse economies: lends Second, programs. Banksupported means by typically latter minimizedthe effects adverse potential analyzed properly been poor measures necessary impact ensure needs it Bank, Together designing when anti-poverty implications fiscal account into has part, its For purposes. those lending strategies reduction poverty formulate helping in lead will essential. is Bank World between responsibilities delineation a take bound reform that recognized was It framework. legal appropriate sector effective an including institutions, essential development included This reform. massive both needed rapidly. consensus involvement financial IMF for need hold, took reforms structural stabilization macroeconomic As IMF. with programs had Slovenia except countries Union.All European joining economies market developed becoming to ways their on well are path this followed Poland, and Hungary, Estonia, Republic, Czech as such economies, leading The conclusions. these confirms process transition years ten first the of Analysis time. clear professional long

offered value resources, draw intend do they Though arrangements. precautionary continued Latvia Estonia so, Even declined. Fischer Stanley knowing find markets reassurance supported lends sometimes Third, commitments. their stick pursue if possible only transition. path alongthe rapidly move economies lagging trying heavily likely institutions Woods Bretton countries. ways most about remain questions important done, remains much But Ukraine. Russia importantly all almost progress There corruption. fight thereby transparency enhance systems legal strengthen measures including frameworks, institutional develop help tried We policies. reformist support sought governments, member individual organizations, international effectively. assist difficult far It corruption). involved have (which resources national control over struggles well ahead, way consensus political effective absence impeded back. held been has growth reform States, Independent Commonwealth especially countries, many greatly. varies transition other Progress place. prevent Either crisis? immediate not are difficulty, while that, countries lend Fund should difficulties. economic significant experiencing provide or crisis a program Because possible? this Why devices. signaling commitment as serve programs such language, technical more implemented. framework investors foreign residents both confidence instills involvement Funds The reforms. painful often but necessary implementing policymakers domestic to useful is on constraint external an provides IMF cases these In ahead. period some for conducted which countryin with of Board then staff by instance first the in reviewed, and monitored be will commitments policy ensures that potential frameworkagreed mechanism

framework an find Sometimes policies. sound implement prepared themselves shown provides these like cases In Colombia. Turkey agreed recently has exemplified type important. so Intentis Letters IMFtheir publication securing progress why reasons known. publicly details more bound function this transparency, theme return To community. representing IMF, Role establish used sometimes are Staff-monitored occasion. approach does lending? this, achieve certification rely one Could Union. Monetary European accession laws budget balanced instance unusual, process use course, Of Turkey. program recent case appears This intractable. appeared hitherto problems long-standing attack before performance record represent seen still resources provision possibly Fund, agreements financial value greater place appear alike and governments But negotiated. agreement arrangementsand Precautionary commitment for support international effective provide scope offer facilityalso Line Credit Contingent with lend only Agreement Articles its constrained countries? many too prevents what situations, non-crisis in lending is Fund if that asked might It lending. necessarily without framework, Nonetheless, conditionality. policy constraints under operating dislike typically they because possible, soon as them out get or arrangements, IMF into getting avoid seek generally addition, need.In a how know inability counterfactualour problem by hampered been long definitively impact their assess Attempts work? programs IMF-supported Do sector. official than rather markets on dependence towards move encouraged need Countries with. dealt be needs borrowing of issue The borrowers. repeated become countries studies Recent Fund. the to come not it had performed have would country coherent track loan modified balance-of-payments few

a seems view consensus suggested. studies empirical earlier than successful more programs IMF indicate analyses These countries. non-program program functions estimatingpolicy-reaction by issue address try Fischer Stanley balance-of-payments exceptional experiencing intended SRF year. last facility (CCL) Line Credit Contingent 1997, introduced was Facility Reserve Supplemental crises. resolution involvement private appropriate seeking andin facilities, itslending reforming areaparticularly approach Funds strengthen revealed crises experience role. this plays already crisis. experiencingan exchange foreign lend can institution enhances This approach. control comprehensive rejected market all almost crises, recent Despite mobility. benefits potential most sacrifice imposition robust, sufficiently yet systems whose inflows market-based style Chileansome use supported has while flows. controls extensive impose would option One panic. financial signs classic also these character indiscriminate sometimes scale But fundamentals. poor development gradual or revelation sudden response understandable been markets emerging particular from outflows cases many In contagious. and volatile extremely proven have flows capital international because necessary crisis.This external facing countries lender sector official an does world Ibelieve situations. crisis role IMFs question turn now me Let Lending Crisis significant). statistically to enough large not general (although favorable usually is inflation on impact The financing. Fund further for need removing improves, payments of balance Meanwhile root. take reforms structural revives subsequently growth that but tightened, are policies macroeconomic as term short the in depressed be will activity economic program, typical

created problems Role when likely confidence. market loss asudden from arising need, financing short-term create enough outflows hazard, minimize To monetary threaten could contagion members year, first year. up extend can Board months, 1218 within repay expected Countries creditors. official both participation maintain encouraged using intended points. 500 reaches until thereafter months six every period end 50 by increased surcharge This loans. charge rate regular above points basis 300 applied yet country No Brazil. Russia, Korea, used was SRF rates. penalty at term short relatively amounts large resort, prescriptions classic Bagehots direction move facilities These quota. countrys times five three between normally amount although limits, access normal subject is SRF, like facility, SRF. under loans same CCL on drawing terms repayment cost crisis. imminent facing not but contagion, vulnerability their about concerned countries measure acting In resort. an whether arises frequently question unlike But functions. lender-of-last-resort critical fulfill does IMF manager, lender, event obligations external restructure easier make designed should contracts other future, suggested been prevention, On system. international reform issues difficult most remains crises financial resolution prevention involvement Private resolution. crisis contributes sector private ensure circumstances some necessary be will it possible, extent hazard moral reduce to and reason, this For limited. strictly are lending for available resources Funds the currency, own resort last lender as operates that bank central a included recently has government British The bond currency foreign its of one in clause action risk member preventative CCL. domestic collective

reserves, usable holding off better some suggest right certainly are they Nonetheless public. lines, contingent by substituted possibly could expensive, typically assets, foreign short-term amounts larger hold suggestions IMF.Their Reforming paper, their address Meltzer Calomiris Professors repay. enable improve Fund, borrowing when themselves commit which programs adjustment reassurance added gains status. creditor preferred collateral gets sense, an so. done rarely collateral, ask Fund permit Agreement Articles collateral. basis made loans require course rules Bagehot The issue. critical but difficult deal best how Board Executive consideration experiences these lessons seek staff IMF months, few next In Ukraine. Romania, Pakistan, Ecuador, cases different very gained been experience Further crises. Brazilian Thai, Korean, responses included were payments balance financing official together sector private involve Measures follow. others encourages hoped issues, Fischer Stanley mechanism this through lines secure wishing Countries CCL. design incorporated idea This situations. crisis support financial IMFs prequalify required should whether question related raise They experiences. recent drawn clearly has example Korea a include These advance. conditions or requirements, meet not do fate indifferent be would community that doubtful It financing? lender-of-last-resort type any ineligible countries other all make realistic it is policies, adoption for incentives important provides prequalification While necessary. as policies adjust willingness demonstrate have also will country line, credit the on draw To reserves. debt external of management sound and creditors, with relations good standards, international to adhering in progress consultation, IV Article latest its from review conclusion variety favorable

help transparent, less another, find probably industrial large circumstances practice, In help. denied trouble into get they when generated might instability Role charging by instance for provided, terms differentiate would qualification preapproach alternative An thrown recent policies, On activities. focus sharpening facilities; lending restructuring Fund; effectiveness transparencyboth increasing surveillance strengthening sectors; policies macroeconomic strengthen efforts areas: four way under reforms mention briefly me Let lessons. those itself reform steps important taking already members, our encouragement support With years. three last over markets place taken events turbulent lessons many learned community Reforming requirements. standards certain meet fail It system. role key light on relied crises major all either extremes, two towards moving market emerging see we Accordingly, them. sustain able been have pegs very Countries crises. such avoided rates flexible had but vulnerable appeared countries some true also it crisis; before system exchange fixed or rate a as country presented observed. being are principles, core Basel including standards, international therelevant which extent evaluation an include These member systems assessments undertake begun has IMF countries, other agencies regulatory banks from experts assistance Bank,generally World with Together countries. Asian that than smaller was crisis Brazils cost economic why reason one That crisis. lesson another sector financial strength of importance central The currencies. fewer toward be likely most is trend run, long in and peg hard measures the to premium sharp fact pegged guide

efficient. markets make help investors, improving policy, therefore debates informed better encourage will because both effectiveness, enhancing keys Surveillance Cameroon. Canada from ranging way, under completed been assessments twelve far So incorporated conclusions system. strengthen needed Fischer Stanley participate agreed fifty cases. member with outcome summarizing Notices Information Public be. used they than widely much disseminated fruits a emphasis greater placing surveillance, substance On available liquidity data regular well controlsas example, issuesfor papers publishing resources. use reviews or requests percent 80 around now Intent Letters supports. lending IMF programs published being More board. consultations IV Article for background prepared reports staff publish project I As reports. known formerly (ROSCs), Codes Standards Observance Reports these compliance information collate experiment an part taken already have countries Several policies. fiscal monetary transparency supervision banking dissemination, statistical as such cover surveillance. its into conduct codes standards international integrating is The comparisons. cross-country in advantage comparative Funds effectively exploiting surveillance dimension regional on more focussing also are We analyses. vulnerability practices, management reserve debt regimes, rate exchange sustainability issues, sector financial account capital include These crisis. market emerging by important especially be to shown areas policy facility. (CCL) Line Credit Contingent and (SRF) Facility SupplementalReserve lending: lender-of-lastresort elements incorporate that facilities two adopted has Fund crisis, Asian of outbreak the since earlier, pilot number noted

if use potential await than rather prequalify incentive no SRF, same rates interest since First, reform. key two are spring. during reviewed redesigned clear not, CCL used, been SRF Although Role may Second, break were when automatic more credit line access make appropriate new creating addition out. breaks There Stock Buffer eliminate month agreed board executive remainder. reconsiderthe facilities number reduce needs flows, capital volatile large scrutinized mechanisms Funds all appropriateness Facility. Financing Contingency Compensatory element contingency eliminating favor consensus continue will arguing by expect, would you as conclude, Iwill Conclusion agencies. responsibility remains these programs design Lending implement. need members its other fiscal recommends, it consequences social account into take IMF that lesson home driven also crises recent But surveillance. prime activities, lending areas Those area. this Bank effectively extremely cooperated years few last Bank, World activities with overlap considerable is there sector, In sectors. banking rate exchange fiscal, monetary, areason structural accompanying policies on must focus IMFs meetings. spring our run-up way under getting a be to proved have we valid, remain established was Fund for purposes The system. financial role difficulties. in countries assisted and trade, of growth encouraged policies, macroeconomic improved has community international the which through instrument crisis world broad review vital valuable

I Article Fund, InternationalMonetary ofthe Agreement Articles Appendix: complete. from far but way, well is process activities. reform need revealed also But recommended. most benefits seeing now are swiftly; responded we challenges, new difficult posed have crises recent Fischer Stanley through cooperation (i) are: Monetary International a establishment assist (iv) depreciation. competitive avoid members, among arrangements orderly maintain stability, promote (iii) policy. economic objectives primary as productive development income real employment levels high maintenance promotion thereby contribute trade, balanced expansion facilitate (ii) problems. monetary on collaboration consultation for machinery provides institution Article. this forth set purposes decisions policies its all guided be shall The members. balances disequilibrium degree lessen duration shorten above, accordance In (vi) prosperity. international or national destructive resortingtomeasures paymentswithout balance their maladjustments correct opportunity with providing thus safeguards, adequate under them available temporarily Fund resources general making by to confidence give To (v) trade. world growth hamper which restrictions exchange foreign elimination the and members between transactions current respect in payments of system Purposes permanent multilateral

international make amended agreed Committee Interim 1997 April Introduction A worse. hardly could timing mandate. broaden intention mandate, center trade convertibility current put Agreement original movements. jurisdiction extend Fund, purpose I Nonetheless, reappearing. sign no shows It disappeared. for members IMFs appetite villain seen widely countries, member Funds all nearly by action parliamentary required have would Articles Amendment Korea. neighbors ASEAN its Thailand from transmitted flows among contagion crisis, role aprecipitating played reversals flow Massive fast. very growing been point had economies on havoc wreaking erupted, crisis Asian later months amendment concept a policies, strong chapter: out spelled The place. thenecessary occur sequenced, well be should liberalization that meant IMF By liberalization. account (Highlight) orderly ensure was goal chapter, this in emphasized as For, one. met. are preconditions sector macroeconomic when only movements capital term short investment, direct foreign with starting first, end long at open to is recommendation general the sequencing, terms In information. of provision transparency adequate system, financial and banking central few believe good

A account. apply XIV VIII Articles present analogues develop believed We circumstances. inflows supported account, slow argued years recent Rather, Fund. inside we conception liberalization. relentlessly press lead believe Critics out laid approach amendment discouraged type place. preconditions necessary having without end short at up opened country each rather, well; been had Korea, Thailand both In Fischer Stanley were there If accepted have still years, sixty nearly After transactions. controls imposition prohibits which VIII, accepts declares ready, them may place current amendment, a only course, Of VIII. accept eventually state; interim some acceptance declare movements, liberalizing begin ready was When XIV. Article equivalent under restrictions maintain could it. implement countries brings if Fund aim I chapter. this liberalization account argument 2002. August 9100, Paper Working NBER Synthesis, Survey Performance: Economic Liberalization Account Capital Sloek, Torsten Ricci, Luca Klein, W. Michael Edison, J. Hali instance for See 1. Note recovers. growth global until so do to likely are They levels. peak previous their reached never but 2000 and 1999 quickly quite recover did Flows happened. not has That temporary. be probably would crisis Asian with associated flows capital international slowdown that predicting by starts chapter This correctly.1 done it provided liberalization, of favor in solidly more becoming is gradually benefits its on evidence empirical the suitable make

taking Bank World Meeting Annual Fifty-Second This Fischer Stanley IMF Role Liberalization Account Capital reached could agreement liberalization, promote on work complete mandate given Board Executive our annual the meeting likely appeared months for Kong Hong IMF, For history. place or time any rapidly, people, more standards living improved decades than less within which growth, economic astonishing an by propelled East change profound mandate, Funds center at liberalization convertibility current put Agreement Articles original years fifty over alittle Coming SDRs. issue I liberalization. risks second, miracle; sustainability about first, questions: sets fundamental two raised has region turmoil market But markets. liberalizationofinternational orderly promoting part full its play Fund enable would resources amendment account (Highlight) apace, proceeds markets capital globalization when after that, belief firm my record except miracle, Asian discuss a just It annum. per percent 68 range sustained be increase not should India, notably most Asia, parts other that reason no is there And foreign-made. homeshocks, recent adjusting now economies those in resume will growth rapid pause, brief investment. foreign trade to up opening and education, improving reforms, structural oriented marketaccelerating policies, macroeconomic right the policyof of quota special relatively matter

saved Departmentcould Legal overworked least everybodynot unnecessary, would Funds proposed so, If possible. long off therefore benefit, rather risk difficulties source often suggest 1993does Europe perhaps 1995, America Latin were they as just 1997, Asia East present been effects contagion region, currencies other devaluations subsequent devaluation, its baht Thai attacks regionthe turbulence market whether question account. today focus main My Fischer Stanley hear surprised will You effort. deal What dismissed. lightly not should cannot consequences fear policymakers concerns But view. reject things: three skeptical remain who you those persuade do like costs; potential outweigh liberalizing benefits a operate adapted be system, financial particularly institutions, policies economic liberalization: account well prepare to need countries 0 markets; liberalized argument, this making In policymakers. andits aneconomy pose could liberalization premature risks minimizes nondisruptive orderly, out carried accountliberalization ensuring way best is Agreement Articles IMFs amendment an agenda. policy the put crises that movements about issues critical several on touch also I than questions more raising for advance apologize though, years, recent in markedly increased have flows capital international net gross Both forecasts: and facts background some First, Movements Capital of Growth The answer. great emphatically world must, can

movements many for IMF Role Liberalization Account After 19901996. $150 exceeded net annual Average payments. balance factor A then. since increase continued recovered, pace crisis, Mexican following 1995 not This 1997. half first sustained appears flow 1996, flowed $235 2 above well GDP, world 0.8 nearly is it amount: $60 more receiving recent from benefited particular, Asia, GDP. country 19901996, received Asia 1996. billion $107 factors: four mention me Let much? so increased global Why investment. form taking that much with often periods, long GDP 58 averaged region this Net regions. other than inflows, total percent 55 investment, direct proportion inflation; fight needed high attracted short-term policy, limited been rate exchange flexibility where especially cases, In efforts. reform stabilization successful to favorably responded inflows Capital return a investment foreign encouraging account strengthened has outflows cases some Indeed, developing both transactions international liberalization capital; flight 0 countries; recipient systems financial stronger development diversified insufficiently still are countries Portfolios peak. their reached means no by have flows capital International countries. industrial investors institutional large of emergence and decade, last over economies advanced rates interest term longerin trend declining the factorsincluding external critical pause small year higher first, second, third, fourth,

This accounts. economies note we view, this In to. adapted should therefore avoided cannot development, path step an first The liberalization. favor two are There Liberalization Account Capital Risks Benefits grow. advanced sophistication decline, costs transaction spreads, country potential information increase, continue will gross volume sure We countries. other markets investing from gain much likewise internationally; Fischer Stanley facilitate movements free abstractly, Put costs. its outweigh balance on that argument, second satisfactory not sufficient, while But accepted. be inevitable rapidly how question begs it if even one, a with investors provided thereby diversification, portfolio for opportunities expanded flows International income. levels attain investment trade finance alike countries developing developed through channels broadening system trading multilateral support accounts open economy, international viewpoint markets. residents funds investable potentialpoolof both increases form take perspective, countrys individual From welfare. economic thus uses, productive most their into resources channel help allocation efficient world over all Governments controversy. serious any longer no is there which benefits about investment, direct foreign part means savings global Access world. real in counterparts concrete have they sound, may arguments these Abstract (Highlight) system. financial efficiency the increase can capital so domestic improved has competition export and technology, sophisticated access increasing by growth promotes liberalization account current as just And returns. of rates risk-adjusted higher achieve to powerful correct more

as enjoyed has room represented country every benefits concepts, abstract These portfolios. risky less diversified, canhold abroad investment portfolio permit countries Residents system. entire upgrade participants foreign entry accompany technologies financial new The abroad. borrowing sophisticated can likewise corporations Domestic domestically. obtain able might than financing cheaper gaining Euro-markets, borrow IMF Role Liberalization Account Capital exert expected should Accordingly, developments. political unforeseen system, domestic soundness perceived policies, conduct sensitive highly flows International risks? about what Still, international access this right, judgment markets Normally, policies. macroeconomic countries influence delivering messenger, only were capital comes trouble admit likely nor appropriate; is it if even object, discipline welcome always do policymakers course, bad. penalizing policies good rewarding by performance overall improves which one, from effects, form take marketoverreactions concern, most Of excessively. fast, then but late; react tend Markets long. too sustained sometimes excessive, Sometimesinflowsare alwaysright. not markets However, (Highlight) messenger. shoot tempted they Rather performance. their when efficientfor rational entirely spillovers Some markets. related, other, market one information, incomplete overreactions, be seem contagion 1995, Argentina certainly crisis, Asian East recent extent some to including sometimes, But depreciate. also may competitors its rate exchange equilibrium devalues, a forces attack face weakens system banking because instance, for prophecies, self-fulfilling become attacks that possibility light in worrying more all are effects Contagion situation. economic underlying the appraisal inaccurate an on based perhaps behavior, herd of rates.1 interest higher and disciplining valuable verdict crisis result devaluation

While Fischer Stanley I unjustified overreactions examples see we out up blow not do crises currency appropriate: mostly movements believe attain reasons who technologiesand advanced introduction aresult efficient become markets, sophisticated terms, favorable lend borrow able governments residents whose benefits bring Liberalization up: sum To (Highlight) far. too go started, once problem shocks. external or reactions rational start rather sky, blue rapidly more grow therefore will investment, saving both allocation This occasion. excessive themselves which effects, contagion reflect sometimes excessive, occasion on based, rationally are these always Almost swings increases time, same At decades. two last Asia certainly they marketsand own their competition foreign allowed markets accessed countries where world over all seen been have gains These manner. sustainable Managing community. international for liberalization, contemplating those concern a operating response right What System particular: uncontroversial, known well done be needs what Some sentiment. market changes sudden vulnerability minimize as so framework policy its of structure reversals, flow rapid cause can policies avoid to is obviously need prime The shocks? inappropriate with economy burden occasionally severely, mistakes penalize may but benefits, major offers that policies; macroeconomic sound pursue 0 and system; financial domestic strengthen transition. the in controls some retaining means appropriatelywhich liberalization account capital phase also clear better valid Liberalized system

about: questions also IMF Role Liberalization Account Capital markets; information provision 0 surveillance; role there elements lightly touching turn, up topics these take me Let financing. need potential As sustainable. small, deficit budget low, keeping promotes onethat framework macroeconomic Asound Framework Policy Macroeconomic points. controversial or novel rather emphasizing consensus, flows part sizable sustainable; more investment direct foreign particular borrowing longer-term by financed deficits Current concern. cause be highershould certainly GDP, percent 58 range economy, deficitsdepending large case, In analysis. formal susceptible less shocks, withstand ability sense, another borrow. can at real growth economys depends account current sustainability dynamics, debt matter are short-term deal difficult sometimes It alarm. particularly interest domestic high a but problem, this answer easy There faced. inflation moderate from stabilize seeking countries many so that problem inflows famous This flexibility. limits which in A defense. line first policy fiscal country developing no excessively, moved have currencies, major among even rates, floating freely But rates. on decided ago long (EMU), MonetaryUnion and Economic European join intending those for except countries, Seven Group mobility. capital free with consistent system rate fixed form any whether question reopened has Asia East experience recent The be? rates should flexible How rate. exchange of flexibility the increase to is response well-understood context tightening second

over served well were Asian fluctuations.East such live want would economy world into integration through growth Fischer Stanley importers exporters providing thus flexibility, limited or fixed either systems period peg better certainly almost pegged, easy: conclusions Some question. answer agreed generally no There agenda. back optimal question return, conditions normal more As choice. right made attack speculative imminent an threatened float allowed Nonetheless, economy. international participation their facilitated certainty than rather currencies bound level case, any In move warrant, circumstances if ready stand should do, they If band. crawling inflationa domestic perhapsdepending margins, wide very band, form some return will may that, Beyond currency. Toward paper, important s staff Fund aftermath. Thai equally been has aftermath; its crisis crystal it crisis; Mexican before clear becoming was strength role critical Sector Strengthening ranges. desired out moving signs shows payments) balance (equivalently rate exchange when adjusted policy macroeconomic growth, export-led on relying developing policymakers, provides Stability, Financial required analysis have policymakers now, By system. banking a particularly changes, those Implementing rapidly. with dealt are institutions insolvent information, informative publish lending, connected limit loans, bad for provision requirements, capital meet banks that ensuring standards, prudential and supervision improving by systems, financial strengthen done be needs what of idea from recover to seeking now countries both urgent, nonetheless task The authorities. supervisory the hamper pressures political where especially difficult, frequently is trouble, in already system long measure basket single concern Framework detailed healthy good

economy, growth essential ahealthy enough strongly emphasized cannot it crises: future avoid crises, recent IMF Role Liberalization Account Capital both system banking invitation crisis thus weak. framework economy liberalizing dangers obvious There Controls Use Phasing crisis. such any severity countries rules, fast hard few reforms, structural familiar more case area, this But existing impact institutions, its development stage payments), balance (including situation macroeconomic countrys regard due paying liberalization, access obtain which funds flows large intermediating efficiently incapable domestic Weak movements. instability could factors Both conditions. economic underlying unrelated incentives distortions regulatory there reform, sector coordination Absent process. reform early very liberalized Indonesiasuccessfully offer first me Let continued is liberalization phasing side obverse The reversals potential vulnerable especially institutions financial weak important, Most flows. international from result prices asset movements affected adversely be addition they liberalization; account them reimpose unlikely removed already flight. capital with associated been often has prolonged their factor, risk country additional an as markets by viewed They economy. costly and inefficient are controls, prudential except Controls, controls. of use on perspective a perhaps gradually, generally remove will place in nonprudential have now purposes. emergency for temporarily, basis, the cause those removing them, refine to seek may controls some retain that Countries bang. standing guarantee notably general limited big

background Against liberalization. trade start quotas replace often tariffs controlsjust distortionary them replacing distortions, greatest Fischer Stanley A problem. produce inflows short-term inflow, forms selected restrict robust sufficiently not systems whosefinancial countries bemadefor casecan Atheoretical periods. transitional during consider liberalization, progressive trend restriction particular any a provide because reason both retained reasons payments balance imposed may outflows Controls quantitative. than rather deposits, requirements reserve taking market-based, damage less likely imposed, might Whatever any. if benefits potential effectiveness, lose will they which with speed thereof, lack or effectiveness their restrictions, such costs account takeinto haveto desirablewould country analysis. serious deserve that issues These international increasing also thereby perhaps attacks, excesses economy regulation ask need we economy, transactions counterpart have speculative Since markets. efficiency increase regulations, improved as participants, information provision whether question raise overreaction market cases occasional Still, them. tame done been yet has much nothing practice home, closer aimed better would speculators at anger Usually speculators. and hedge about something do demands produces crisis currency Every standards. prudential accepted internationally part form well flows, shifts institutions vulnerability reduce to intended controls, Such corporations. by taken contemplated be could Similar currency. take can banks positions open the restrictions instance countries, many place in already are capital foreign on controls Prudential desirable. generally is removal gradual Their institutions. financial domestic for funds of source general judgment captive

provided reserves Specifically, IMF) (including sector supplied quality poor by worsened Mexico from drawn lessons many One Provision Information Liberalization Account Capital available. readily not debt external structure lag, game policy provision. timing optimal question through thinking done much unwise some prevent help interventions, nature extent affect interventions certain publish obligation Second, cases. those needed adjustments hastening thereby did, than sooner funds withdrawn meant would this crises, each In decisions. likely informed First, information. such arguments two are There operations. forward bank central including information, better argument reinforces crisis Thai Board.2 Bulletin Standards associated development with made been progress Considerable 1996. early established Standard Dissemination Data Special initiated was initiative standards data IMFs a designing one as thought problem instead, If understand. easy secrecy penchant official markets, hostile authorities between But future. work they expect reasonable Thailand, well worked procedures new Funds say fair It developments. surveillance timely emphasis increased placed has IMF crisis, Mexican Since Surveillance Role The years. few next agenda on be surely issues These markets. efficiency increase actions own their discipline order public make need participants market consider have also will we developed, framework that As strengthened. is provision information more for case then policies, disciplining responding in markets effectiveness and policies of choice the both influence to long result, battle

would Fischer Stanley fact limited effectiveness crises. frequency reduce though even crises, all prevent provision increased surveillance, improved assumption built cannot system Theinternational happen. crises predict just future some signs warning miss surely perfect. made ever could any imagine access privileged depends conduct ability Funds Because action. take may That public. fully concerns making cause enlist based should effective, To policies. good pressures exert members, group fellow familiar more become countriesto Asian different instance dofor their what by affected be likely experiences, similar countries enables Such Union. European or (OECD), Development Cooperation Economic Organization those as countries, groups smaller within mutual room addition level. global at operates surveillance IMF accept. have After groups. other regional supporting part its play willing here situation, analysis such When faced. dangers us warned Fund including no-one But markets, but policymakers from generally refrain, hear sometimes in a also There decisions. make evaluate duty has government ultimately, But, cajole. persuade, suggest, analyze, information, provide can neighbors Fund authorities; national policies right pursuing lie. responsibilities primary where of sight lose not important it time, same At performance. our improve seek lessons draw need we crisis, every after and accurate, is need. information given are provided players, with rests evaluating correctly for responsibility prime The efficiently. operate markets that ensure will incentives so, do they if accurately; situation economic underlying the appraise to participants market on mistake country position limitation sound complaint

happen. improve, policies government refined, regulations prudential strengthened, surveillance markets, provided information much how matter No Financing for Need Role Liberalization Account Capital prosperity. or national measures resorting without payments balance maladjustments correct opportunity providing thus safeguards, under them temporarily resources general making members confidence give To first out set IMF purposes One measures. adjustment painful forced are evaporates, sector private I Article referred safeguards provides conditionality financing, purposes, accordance continue crises. many way this act its shown communityhas is, requires flows increased first, lending: about interrelated important two raised have Agreement Articles amendment proposed crisis. external an effects destructive stem actions take need faced on they likely but future, funding official requiring crises fewer there expect reasonable improves, markets international efficiency As yes. questions answer amoral circumstances whether second, loans; size determine criteria such clause, circumstances exceptional invoking by quota countrys relative loans large very provide able was Thai and Mexican both In past. typical than scale a creates trouble lend willingness Funds question no There task. their adequate remain fundingwill supporting with together cases some loansin ensure criteria, lending review to appropriate also would it crises, fewer, even larger, likelihood increases liberalization account capital if But future. available be will countries encourages emergencies in financing Fund of availability the that not is hazard The hazard. crisis, (v), reexamination larger route moral

knows because lend willing may hazard Instead Fund. come fast slow usually governments recklessly, behave Fischer Stanley found yet but how struggled community view. this as low so markets some Spreads default. go trouble one, find solution. if official speculators it making increase also would existence financing. attached conditionality reducing risk runs creation their when especially crisis large establishment skeptical are surveillance. improving by prevention groups role see We help adequate receive they reassurance provide place, put need arrangements permanent more whether question raise crises Thai Mexican financing roles dealing costs thefinancial shares sector private ensuring thus There available. will such which amounts circumstances about clear too not hazard, moral reduce intended financing, lender-of-last-resort rule classic One hits. a is This crises. likely crises, with deal available known volume between lib member inhelping involved increasingly become facto, De resources. demand payments balance effects important potentially decisions Such account. liberalizing been have countries many system, financial international operation for movements importance increased background Against movements. capital jurisdiction Funds extend Agreement Articles amendment proposed briefly turn me let Finally, Amendment Account Capital IMF Role The basis. hoc ad an on arranged them leaving than rather funds support regional prepositioning desirability and limits, lending Fund of size the both considering in weighed be to has that country good way tradeoff consideration

eralize Role Liberalization Account Capital there agreed IMF Committee Interim 1997, April contexts. certain countries require right area this formal only Yet stability. financial economic undermine does movements liberalizationof make Agreement amending benefits jurisdiction Funds extend purpose obligations transactions. imposing from refrain theobligation areready,membersaccept When account. apply XIV VIII Articles present analogies develop likely doing In movements. liberalization orderly promote enable goal prime restrictions. such need obviate pursue therefore, will, approval without transactions current transfers making impose not community international confidence provides a provided time, same at has, positions starting different take allowed has framework This warranted. longer no exchange reliance strong sufficiently position payments balance until Fund, joined were existing circumstances adapt maintain XIV, under may, it VIII, Article accept is The reasons. prudential evolution institutional market considerations reflect could New force. into comes amendment when place controls circumstances changing adapt able Members Fund. by approved arrangements transitional themselves avail so, do ready are they Until out. worked have will means precisely what fullythough account liberalize obligation accepting eventually members envisage can we account, capital case in Similarly, elimination. their allow to necessary be would that reforms policies restrictions its of appropriateness on member and Fund the between dialogue for manner number central nutshell, country basis

VIII, Article Similar problems. address needed restrictions temporarily approve provision might Fischer Stanley send movements respect with obligations new acceptance provides Acapital too. categories other doubt no flowand among reasons; macroeconomic or imposed those prudential quantitative market-based controls; selective general outflows; inflows between distinguish need so, doing In methods optimal goals, their attain them help likely most on countries advise types different evaluation analysis develop have adopted, framework If markets. access serve community, financial intentions its signal establishment facilitate It circumstances varying regard due paying while flows liberalization encourage for possible make place remain could controls which during period I Ihope Remarks Concluding area. this initiatives agreements multilateral regional, bilateral, existing duplicate than rather complement thus extension The flows. international over role surveillance Funds strengthen would it movements, area jurisdiction giving And movements. by caused are problems finance upon called also may fact light importance particular is This liberalization. relating fromobligations exemptions permit toor adherence require considerations payments balance and structural, macroeconomic, when determine to enabling controls, capital application behavior good code applied a believe we why explained inter an that recognize We members. Fund all of interests the in be will arrangements, transitional including lines, these along amendment account members clear universally

a is flows importance increasing markets. off itself cut afford can country no inflows from derived have benefits many But risks. these us remind region developments Recent system. monetary risks challenges significant entails also but opportunities, enormous movements free environment national IMF Role Liberalization Account Capital I 1997. 19, China, held IMF Asia seminar at presented was chapter Notes well. member our purpose this serve will Agreement Articles amendment proposed The accounts. capital their liberalize countries individual by process economy, international order bring help that agreements laws in reflected better be needs which China. Kong, Hong including subscribers, 43 were there 1997, September As systems. data financial and economic countries concerning information provides Internet the on board bulletin electronic This 2. equilibria. multiple so-called of cases are These 1. assistance. his for Johnston Barry to grateful fact, am

Melbourne. University Lecture Finch as delivered chapter This Introduction Research) Development Policy PDR, become later Restrictions, Trade (Exchange Department ETR central Director Finch, it because lecture deliver for pleasure retired Fund. at working possibility interested first 1984 who importance believer but Fund, comment me Let 2001. died David deal. had issues on feedback getting him, problems running time, time him meeting deal First, chapter. reading arise points when put, Simply equilibria. into countries push can markets volatility excessive introductionthat made point one emphasize like by pressure massive subjected are institutions I crises times Many crisis. produced flows reversal seeming thereby crack, may they flows, capital help trying were we country another seemed often It self-sustaining. equilibrium make circumstances, such aretypical rates depreciated spreads high very justified prospects its about pessimism equilibrium, a interestrates lower justify optimism in one, work have help, Funds country, Rather, change. making of way quick and simple no there that usually unfortunately, answer, And good bad the from move to done could what was then question The equilibrium. with consistent be also would which rate, exchange appreciated particular staunch joined benefited few countrys felt more

demonstrate, 2002 difficulties Brazils crisis: types all against guard do But market emerging case reinforces peg, Argentinas loss consequences terrible that, demanding; regimes peg then already clear was It Argentina. reference explicit markets, capital integrated pegs rates flexible either use supports Second, situation. economic underlying countrys strength underestimating they markets persuade policies strengthen hard Fischer Stanley I others, Third, sustainability. debt about doubts because external an into get may rate exchange systems. banking domestic strong importance visits team FSAP countries. governments from experts participation Bank, World IMF ventures joint FSAPs Program. Assessment Sector Financial FSAP, introduction through particularly regard, progress provides a such developed Krueger, Anne Fund, at successor My mechanism. bankruptcy international type some elaboration consideration further for support expresses also chapter institutions. behavior change done has much not studies, several Despite concerns. exacerbated Management Capital Term Long collapse crisis; propagation creation instrumental been had that convinced were Australia, well as countries, crisis Asian chapter. this once than more raised institutions leveraged highly other funds hedge deal how issue them. with waystodeal suggesting andin sectors their problems diagnosing in useful very reports these found have countries member Many sector. financial weaknesses and strengths on report require likely will adoption since adoption, eventual its to obstacles formidable still are There attention. public receiving is proposal The Mechanism. Restructuring Debt Sovereign or SDRM, of acronym the by goes now which emphasize great country comprehensive proposal,

6 Chapter Introduction contracts. bond clauses) action (collective CACs adoption welcome leading in instrumental probably was SDRM for support official crises, debt sovereign handle to better how about thinking stimulating purpose useful very serves discussion public But SDRM. oppose participants sector private issuers market emerging both and countries, member Funds parliaments the of approval

need language, inelegant if familiar Or, reformed. be view assent command system about propositions Few Fischer Stanley System Financial International Reforming 1 architecture. financial reasons: main two There why? 1998;2 recessions massive witnessed as large, frequent excessively crises shocks recipient subjecting volatile, markets emerging international excessive. volatile capital how ask reasonable It propagated. through mechanisms one countries individual affects mitigateboth substantially least at cureor should undertaken reforms Whatever America. Latin crisis spread restructuring debt unilateral devaluation Russian after uncontestable became which but crisis, Asian East during many by argued was point systema much too a go charts But definitively. proposition difficult it 7), chapter 1997, al. et Campbell market stock excess on work from know As excessive? are levels these that establish we Could 6.3). figure spreads so 6.2) and 6.1 figures (see remarkable flows of volatility 0 case. making towards way economies weaker hits usually namely, madness, the in method typically there strikes, when because particularly establish, to harder even is contagion new Because The long Excessive

seems There affected.3,4 less deserve affected most argue accurate generally possible always it economiesso stronger than 1999. May April data based estimated figures Note: Ltd. Data, Capital Source: dollars. U.S. billions Q2 1999 Q1 1994 markets, financing Private 6.1 Figure Fischer Stanley I as equilibria, multiple if contagion excess establishing problem when put, Simply equilibria. bad into push can markets excessive then volatility about worry reason One are. there a by pressure massive subjected institutions borrowers. for expensive more on borrowing foreign make spreads, level average raise will years few next introduced reforms many likely is low. spreads and large too been have countries market emerging some inflows mid-1997foreign instance timesfor at arguing implicitly are we international excesses reduce hoping in noted be should It crisis. produced that flows reversal the justify to seeming thereby crack, may they flows, capital of particular believe countrys

1999. May and April data on based estimated are figures 1992 Note: Ltd. Data, Capital Source: dollars. U.S. of billions in Q2 1999 to Q1 1994 markets, emerging for financing market Private 6.2 Figure System Financial International the Reforming

estimates. staff IMF and Barney, Smith Salomon Reuters, Sources: points. basis in 1999, 4, June to 1994, 3, January Bonds, Brady selected for spreads yield Stripped 6.3 Figure Fischer Stanley 142

necessarily That System Financial International Reforming consist they Rather system. new entirely an create at considered being lending. such risks reflects accurately thing out. break managementhow improve steps practices lending reforms consider occur, inevitably nonetheless crises But crises. extent frequency reduce help system, lenders borrowers behaviour influence designed prevention,are crisis area mainlyin lie changes,which institutions.These originate;and flows where industrialised leading countries;second, sector private governments system: ofplayers sets three action require will changes proposed efficiently. perform existing modify together, taken which, international participants different by implemented I better, operate do countriesneed emerging countriesthe recipient discussing In Countries Recipient The remarks. concluding brief present then turn, issues four these a there However hostile. turn markets when unsustainable become rapidly may conditions market under suitable are it, practise than virtue recommend easier it recognise we if even times, normal policies constitutes over much not There policies. sound basics, is First changes. required make induce place in put be can incentives what ask also need We flows. capital reversals potential with deal measures fifth, laws; bankruptcy finance corporate fourth, generally; more financial and system banking strengthening third, information; better provision second, system; choice including policies, macroeconomic first, elements: key five on focus A adopt. should countries that regime about monetary or rate exchange which question the to answer clear no produced has controversy of bad number major century

clues, provides area optimal theory While best. regime Fischer Stanley inflationis historyparticularly whatever And regime. its determining consideration wish time some has, had Brazilhave Russia Indonesia, Korea, Thailand, yearsin two last place taken crises The one. avoided nonetheless crisis, severely although Turkey, Africa, South Mexico, them among rates, several casethat also It postseverity contributed system, especially these behaviour economic affected profoundly stable was assumption Further, up leading period pegged or entering probably Nonetheless, governments. weak discipline best often devaluation fear inflation, stabilising theprocess fixing from benefitted many forgotten it should Nor line. holding succeeded Kong, Hong Argentina countries, board time, same At rates. floating direction balance pushed history facts These crisis. risks greater which by presented crisis external defined definitively, so do want well may they fix, choose If accounts. that systems rate flexible choice lead will rate, exchange through than rather board, I as succeeds, EMU if run, longer In choice. preferred be could around bands wide peg, crawling forms various flows, capital international short-term open less countries For peg. normal credible see likely are Brazil, Except systems. domestic strengthen steps is Second currencies. fewer unions more with blocs, currency towards a Toward IMFs (1997) Principles Core Committees Basle to part Thanks recapitalisation. restructuring bank on emphasis structural major their placed have Asia in programmes IMF-supported crises. financial recent most of centre the at been has system banking much know we 1997), Lindgren, and (Folkerts-Landau Stability Financial for countrys critical country different massive clearly fixed expect, shift Framework

produce System Financial International Reforming bankers decade this welcomed has banks entry America, Latin understood increasingly point competition. foreign particularly competition, so needed, supervision regulations only But supervisory after which, system standarda dissemination special SDDS IMFs creation led argument This reserves. Mexicos information, right much worked argued Mexican After information. provision Third markets. bond equity system, therest bestrengthening systems, they time same at And system. banking domestic strengthening included have would contained operation.5 is period, trial year theirintensity some owe crises recent The debt. external well as include supplemented now SDDS commitments, forward banks central crisis, Thai fact vulnerable substance hedged form creditors while exposures, unhedged leveraged highly cases many Domestic lenders. borrowers up built been had sizes about lack reflected exposure such vis-a`-vis transparency Lack off-balance-sheet. were relevant Many economy. shock economic disseminate collect then adequate enforce indeed promote countries creditor debtor both Governments agencies. official institutions financial investors, disclosure standards appropriate practices accounting sound adopt sector private by efforts require information Improvements instruments. positions complex assessing in difficulties place, takes trading off-balance-sheet where markets nature opaque the including factors of a not are sufficient, never will better course, Of activities. own their on transparent and comprehensive provide should governments that saying without goes It produced. need data what define done be to also needs work basisbut remains it but analysis, or policies good for strong way twokey general major number timely substitute

information Fischer Stanley high roll, times long So part does corporations excessive even owes virulence implementation. their including finance, actions Fourth public. made required undertaken not would crises recent depth responsible policies practices some since government, agents both lead data provide requirements true disruption. prone less markets financial firms, individual economy, state policies, finding costs increases leverage heavy strikes, then, And caution. exercise for incentive great no there lenders many must as commitments, government backed implicitly borrowers believed it If strategy. lenders. sector private credit lines precautionary place put Argentina, notably most countries, several alternative An before. larger much hold should they decide present lessons draw seeking likely small those current better done reserves large very Countries reserves. foreign use responses, rate exchange policy macroeconomic aside reversals, defence line first reversals. flow potential with dealing Fifth them. enforce courts laws proceduresboth efficient governance, principles standards, accounting auditing appropriate adoption includes world. around finance governance corporate strengthen critical thus is It countries. crisis Asian clear become course this All procedures. bankruptcy good absence especially crisis, out a on available resources additional make also will below, detail more in discussed IMF, opened recently facility Line Credit Contingent The reserves.6 increasing than cheaper be possibly could reserves, of holding the supplement from support had and Malaysia, taken been has approach This flows? moderate to controls capital using about How contagion. by hit are pre-qualified have that countries if basis, countrys winning way useful contingency

gradually, removed been has outflows attitude IMFs crisis. present course reversed how surprising But academics. leading System Financial International Reforming with deal outflow impose tempting may outlows. consequently pace moderate intended lines, Chilean along controls, market-based support therefore outflows, inflows capital, short-term surges disadvantages recognise but investment, direct particularly long-term forcontrolling case no we inflows, regard With prematurely. not headingbut ultimately where flows, liberalised fully advanced most The strengthen. system financial balanceofpayments, doing needs what about information both give below, discussed standards, development Second, shocks. external economies resilience markets efficiency increase undertake interests own their see should instance, first In measures? implement emerging encourage done What access. termsof dearlyin them cost andhad circumscribed, widely inefficient, were emphasising around, time approach rejected all 1980s controls had generally American Latin policymakers Indeed, adverse. likely consequences longer-term 1998, did Malaysia as crisis, a depend will Line Credit Contingent IMF access Third, them. adopt meeting recipient lenders requirements provisioning basing by contribute could exporting capital Regulators reached. cycle phase exuberant continue guaranteed cannot fresh, crisis this memory when years, few next in happen that make relied can participants market aversion risk While policies. recommended implemented have countries companies which extent depended lending foreign terms if measures these of adoption for incentive important an be would It standards. international relevant the meet to attempting is it whether on and strong are policies countrysmacroeconomy, further countrys

put commitment That it. improve obligation primary years, fifty prospered operated has system established advanced Countries Originating Fischer Stanley there However, institutions. taken be involve Most system. international reform problem seized countries proves, G-22, G-7 including Gs, various suggestions proposals flurry as And positive. outcome Fortunately increase. quota IMF support would Congress whether uncertain was time some when 1998, during a reversing 1998 November October rates interest obligation. met mostly, clearly, period, recent most inflation. low with growth sustained achieve will policies pursue them critical Thus prospering. output, world two-thirds over account which if impossible is prosperity First, countries. industrial required actions test circumstances are these booms, asset stability macroeconomic years few last Europe States United difficulties sector major absence comfort much too take not should we systems, banking country strength considering In consideration. urgent warrants positions governing regulations prudential strengthening long.7 than rather short lend banks for profitable more relatively it making flows volatility probably lines interbank short-term treatment preferential but accepted, widely been have mid-1999 until effect standards adequacy capital Basle The systems. banking, especially financial, healthy maintain they that ensure need market emerging like economies, industrialised Second, funds. withdrawing were sheets, balance their strenghten pressure under banks, Japanese because countries, crisis-affected from exports weakening by both Asia, crisis Japan weaknesses financial economic However confidence. of revival to contributed also interestrates European cuts and economy, global the in number panic

a As activities. off-balance-sheet on requirements margin higher through possibly controlled, monitored across ensure ways examine need markets. participants many taken heavily much owes undoubtedly contagion Indeed, meltdown. Russian following respected suffered losses worried be we And management. sheets balance strength System Reforming 8 generally. (HLIs) institutions governing regulations adequacy reexamining are regulators Management, Capital Term Long crisis Asian funds over controversy practices. lending IFI in changes consider (iv) policies; developments surveillance (iii) generally; public markets better provision encourage (ii) standards; relevant adoption design policies economic systems (i) ongoing work particular, In flows. capital quality improve economies strengthen above described measures implement countries member help IFIs role Institutions Financial International redesigned.9 architecture international as attention further receiving topic another centres The centres. financial banking offshore existence particularly take, they about information more provide them requiring by only if even institutions, leveraged highly activities regulating difficulties underestimate not should We institutions. such vis-a-vis positions their oversight bank stronger encouraging and/or activities, fund-like hedge controls direct for scope benefits relative given is consideration Accordingly financing. sources other or itsactivities either informed well being without apparently to lent banks leading fact and derivatives; use its leverage; companys extent are: out stand that case LTCM of aspects the result Among

published standards. disclosure regulation securities universal establish working (IOSCO) Commissions Securities Organisation well. other being or exist authorities. standard minimum reference basic as serve Supervision,which Effective Core (BCBS) Supervision Banking Committee area, banking In principles. emphasis particular placing community situation, this improve step one crises. recent severity contributed market emerging sectors governance economic weaknessesin discussed As Fischer Stanley taking Initiatives, Accountants. Federation by established auditing while practices, accounting uniformity achieving at aimed Standards Accounting International OECD governance; corporate area principles involved all theEBRDare Bank, theWorld Committee, Basle OECD, laws bankruptcy domestic harmonise role, above, mentioned SDDS tothe addition May1999.In endorsed were Governance,which Corporate Principles Code implement encouraged members policy; fiscal credibility accountability enhancing guide Transparency Fiscal Practices Good a developed have Bank World specialists sector Financial bodies. regulatory national from areas relevant experts assistance with but surveillance, IMF context mostly undertaken be likely monitoring incentives. appropriate monitoring, international both require will This part. harder implementation their ensuring process; part easier is standards development agreed. been also has authorities supervisory multilateral banks withcentral consultation in prepared policies, and monetary thetransparency on code Asimilar basis. strengthen them help should countries member to these results the presentation The way. under getting now are which sectors, financial of assessments joint undertaking for series lead set voluntary framework

bank, central ministry, finance representing case country, G-7 each members of: consists Membership 1999. April established (FSF) Forum Stability responsible agencies systems, strengthen effort part As year. coming published done Kingdom, United treasury), Australian mainly was report (where Australia Argentina, prepared already Reports exist. now policy various acountry theextenttowhich reports,whichdescribe transparency producing experiment an begun has IMF systems. their System Financial Reforming a lending bank ratings risk requiring instance originating regulation through both sector, could Another implemented. being which extent spreads if markets, provided would standards for incentives best The IFIs. authorities national dealt be then can weaknesses information together bring help gaps, regulatory identifying them, among coordination ensuring succeed will hope reasonable it together, brought been have systems with deal that bodies all time is This flows. short-term centres; offshore HLIs; study: countries, non-G7 from participants including groups, working three up set agreed FSF meeting first its At Bank. World IMF, BIS, (IAIS); Supervisors Insurance Association International IOSCO, Supervision, Banking Committee Basle bodiesthe representatives body; supervisory sector SDDS context in Both (SDDS). Standard Dissemination Data Special subscribers countries 47 Currently countries. market emerging public data financial economic improve to way under efforts international considerable also There information. available better risks, underlying reflect likelyaccuratelyto more are flows capital Private standards. adoption on dependent likewise financing IFI of terms or provision making by and standards, relevant the meets country

only flows recently, Until countries.10 emerging debts exernal lending bank recording working also while derivatives over-the-counter collecting begin set efforts, dissemination collection current reviewing Committee Standing Eurocurrency time, same At vulnerabilities. sector coverage improve initiatives several undertaking otherwise, Fischer Stanley that meant This lag. month A reports.11 discussion Board summing-up Chairmans based (PINs), notices issuance public increasingly has information years, last public. made been themselves not IMFs discussed then are staff prepared economy. its state each consultation IV Article through mainly place takes them. adherence enforce conduct codes standards international various adoption monitor help addition, actions. policy corrective suitable prescription potential vulnerabilities diagnosis facilitate Such surveillance. process strengthening by crises financial costs risk reducing IFIs way broad third monthly. available preferable be although flows, short-term monitoring better contribute will lag, aonemonth data, quarterly moving BIS The sign. awarning provided even would data these before depart arrive could crisis exchange introduced, were PINs since years two In material. market-sensitive for except edit cannot it but PIN, publication block can country a twice in reflected which markets, capital economy global analysis regular is surveillance IMF aspect important Another agreeing. now two-thirds over with publication, their agreed have countries of percentage developments. market economic world on governments, member thus Board, Executive to regularly more reports IMFstaff Report.The Markets Capital International annual the and Outlook Economic World year, six foreign growing year

IMF, time, same At possible. this BIS Improvements improved. First, respects. key two strengthened Surveillance System Financial International Reforming a within begin Evaluation months. 18 next over conducted report, choose able 20 least at involving project experimental An information. sensitive marketedited could PINs, case As so. do want countries allow favours, management which approach, One reports consultation during discussions frank fully willing less accordingly countries, industrialised advanced than criticisms vulnerable far they argue They countries. non-industrialised typically are publication opposed members straightforward. issue However appraisal. external subject become analyses Fund ensuring by product improve also public, provide only not This published. were IV Article especially reports, staff improved would effectiveness avenue, one groups regional through perhaps Board Executive context exerted pressure peer activities. from result recommendations messages policy attention serious pay authorities national for incentives increase essential it effective, Second, carefully. listen occasions public role main impressions, exchange opportunity an as regarded be meetings such that suggested have sector private some While worldwide. participants market with contacts better develop continue needs markets, monitoring generally, More positions. fund movements aggregate frequently report will function surveillance in IMF activities, their on information more publish others funds hedge require made decision if Further, available. publicly them make results use best how consider need we monthly, flows capital international long-term and medium monitor to used is base data those of concerns the whether decide help should study pilot The start. its after separate year

adoption concerns whether justified frank, less become reports publication, opposed Fischer Stanley expertise substantial buildingup require particularly task, small no procedures surveillance Strengthening so. do wanting publication IV Article allowing There contagion. affected country event lines establish such For lines. contingent private place put seeking managed, debt external standards, relevant meet attempting good, generally are policies whose those countries, performing well only 1999.12 April facility (CCL) Line Credit Contingent years, recent system international contagion massive Inspired practices. lending IFI changes consider Fourth, help. crisesbut costs potential minimising preventing wonders work monitoring better expect should we systems, supervisory data sophisticated most even emerged have problems sector Financial means. information recognition but information, not missing Sometimes surveillance. enhanced through achieved can what about realistic necessary time, areas. new financing its use time first enable that is difference critical The terms. same on under Financing policy crisis, rates penalty amounts large loans short-term makes which (SRF), Supplementary introduced 1997, end At conditionality. IMF normal subject becoming remainder with automatically, virtually available be will line credit amount react past always as having than policiesrather pursue countries for incentives extra providing both crises prevent performers,seeking good help to mode a at reserves their supplementing effect in by happenedand has it once resort. last lender principles time-honoured reflect CCL and Facility Reserve Supplemental of design the respects, several In cost.13 low host presumption significant preventive crisis relatively

has There System Financial Reforming sense makes countries. Asian such provided ADB Bank World The markets. enhance banks development multilateral from use possible this attention developments adverse face economies their policies responsible pursue instance, first In How? crises. deal member capacity strengthen need we And occur. inevitably crises works, however higher. average spreads likely quite prone; succeed, risks. returns underlying reflect better prices asset volatile, less make intended are They times. pre-crisis or normal system behaviour relate far so discussed changes Most Management Crisis type. Argentine lines credit sector place put countries guarantees MDB using given isalsobeing consideration Some guarantee. official an on rely flows private normally countries emerging by featureofborrowing aregular become but up, dries access market capital expect cannot they depleted, totally almost reserves its with instance crisis, deep already country when only help for IMF turn action, do policymakers If strikes. strain; some take allow flexible, ifthe and, interestrates raise necessary typically it regime,but rate exchange includingthe circumstances, according vary will deteriorates environment external as how Precisely landing. a But threatens. crisis before well made been policy, especially changes, these Many contribute. have also may policy fiscal I Article out set Fund, Monetary International purposes among economy: international in participation rules agreed critical one That adjustment. of burden entire bear expected be not should economy the defend to willing and attack under is good smooth contractionary (v)

when effective prosperity. international national destructive measures resorting without payments balance their maladjustments correct opportunity thus safeguards, adequate them available temporarily resources general making members confidence give To Fischer Stanley develop time early, relatively cases unfortunately ideal. ownership course, Of country. owned those successful most language, IFI itself. formulated one preferably at circumstances, these help refuse cannot help. turns then both) technically politically (either weak because trouble into gets committed seem which also but inevitable; failure lend, should needed unable or unwilling clearly policymakers Sometimes sometimes advice, offering ensure possible precautions many take needs circumstances all guaranteed. success though even lend wise be may succeed, likely looks there But support. financial backloading implemented, been actions policy critical after only a concern essential. make funding public insufficiency hazard moral Both sector.14 private bail how attention received management crisis question no years, few last In programme. with track on stays providing liquidity access have can country thata markets reassure thatwill facilities designing instance for thinking, this shaping already crises earlier account capital role greater The drawn. recent under experience lessons introduced, facility contingency new continue will process That instruments. its supports, programmes of design refine reform continued has IMF years the Over lending. by countries reassurance providing and perfect are conditions until lending not between should, they than caution less exercise to investors lead vividwill it misleading as often is that language in bailout, loana Fund minimum programme programme, tradeoff

purpose implying language repaid. ensure always will Fund belief System Financial International Reforming help out loan provided IMF crisis First, crises. future use considered ones, new some past, taken been approaches Anumber participation. without economy stabilise resources enough does often sector so become flows capital fact plain reason: valid equally necessity Economic sector. private bail seek reason good one valid, hazardconcern themoral Nonetheless, losses. large very suffered crises recent investors misleading also It prosperity. international national destructive measures resorting without agree expected they clear it made creditor The banks. commercial from available mass coordinating done being course, Of system. financial soundness maintaining responsibility primary inconsistent seeas regulators action sheets, balance weaken actions on pressure put in authorities regulatory reluctance greater note Further, introduced. Plan Brady end until access regain generally succeed, decade most took strategy debt forget 1980s, lessons draw As out. non-banks as outflows rather more lead could sector, official persuasion friendly anticipated appeal an are there When 1980s. much for countries American Latin confronted situation which access, market have not did country and creditors main were when easier was approach This package.15 financing a formalisation risk account into take should we However weight. less carry objection particular this outthen pull tried separately each if than loans their over roll agreeing by off better be would together banks all actionthat collective problem rider free with deal to is response creditors, of set other any or banks, the that critical reasonable bank requirement

such If system. destabilising programmes, financing share forced always Fischer Stanley possibility mere run incentive greater on, insisted where deal concerned approached present likely. crises also out, broken has access, market future hinder rollover voluntarily. credits them lead investors reassure sufficient support, pursuing, are policies adjustment believe when need Rather, loan. every accompaniment debts agree formally will banks conclude not we suggests one dilemma, reached Brazil programme, Brazilian reformulated part 1999, March year. past during pursued sector theprivate methods different Anumber each circumstances depends case-by-case into principal most over roll were bonds whose creditors 1998, end at Ukraine, country. exposure their wouldmaintain they creditorsthat bank its with agreement There Eurobonds. maturing new find required targets reserve on agreed government and Romania, In bond. event payments reschedule easier it modified should suggested deputies G-10 crisis, Mexican Third, Argentina. provided been have banks, development international arrangements, guarantee precautionary i.e. discussed, already lines wouldbealong theprivatesector involving Asecond unlikely. gained, is experience after emerge principles detailed set some Possibly countries. among vary details but credit, private replace primarily used cannot money official cases, this principle definedeither couldbe Acrisis requirement. unanimity current opposed making, decision majority allowing instance a or assistance) for IMF country an possibly (including objectiveindicators of more borrowing make would bond in changes that object countries developing Some well. as contracts other to extended be could approach This IMF. the by declaration condition crisis. case measure crisis formalised time real differentiated voluntary general formal

reflect case them, expensive System Financial International Reforming related Closely issues. Eurobond used exists, instrumentalready Deed Trust British so-called bonda type turns It risks. pricing ability needs system Sachs, Jeffrey associated suggestion approach, framework orderly bankrupt, doubt powerno given members, 182 all governments representing IMF, instance workout. declare majorityto by country time provide difficulty.This debts permit could stay currency, local able ifthey oftheircountry; regulations within operate expected they sector, debtors creditors. with restructuring out work then debtor, formulation. this country the saying ambiguity But Chile. crisis, 1982 crisis Korean happened That debts. over take government for crises exchange atendency been There currency. into payments transfer A elaboration. consideration further deserves approach bankruptcy The discouraged. strongly should hazard moral source had have crises, recent instance, For contracts. terms effect debtors, foreign between itself interpose power organisation an give industrialised some doubtful seemed it ago years If loans. on clauses form weapon legal a done being gradually indeed is done, Something consequential. most probably sector bail those system, international changes proposed Of policies. adjustment appropriate through including theproblem, countryistryingtoresolve provided lenders), bank commercial just (beyond debt securitised holding creditors private arrears in countries loans make may Fund that decided recently has IMF Board Executive related, also and Fifth, years. few last of experience after change to receptive more be might legislatures but changes, weighty are These sting. its lose would clause cross-default the imposed, were fourth special member certain delay potent powerful case-by-case

there First, process. tensions beware must we But programmes. recent way Fischer Stanley a bailed it certain contagion. likelihood involve desire A fewer rather produce tend change this runand incentive way, reg monitoring implementation, creation, including completed, work further after only introduced Other sector. involving policy emerging transparency, IMF sector, surveillance improved reports, transparency FSF, CCL, Facility, Reserve Supplemental Funds standards, SDDS,other Standards,the Core Basle them stream, on already are Some years. months coming gradually place put machinery new eliminatecontagion. able reducebut countries, among differentiation greater lead information better activities, fund-type hedge regulate measures specifically changes, addition, In crises. size frequency reduce should reforms economies, resiliency increasing policies, macroeconomic systems, banking strengthening information, quality improving By before. ever than people prosperity more producing in instrumental been has system present necessary, revolution Nor system.16 international revolutionise not reform would changes proposed together, Taken Remarks Concluding issue. critical hazard moral creditors; reassure need they resources have will positions, financial external reasonable with policies good pursuing creditors assurance providing by resolved be can one but crises, cause important an exits) for (heading panic investor and contagion facility, financing contingency possible development underlies implicitly view resort last lender situation: views two between tension second The case. each circumstances according varies participation sector private that ensure to seeking of approach current the is solution compulsory partial

before community international activities. fund-type ulation System Reforming Notes way. under now process But implemented. act fully, reform proposals evaluate programme, work I 1998. 9, November Melbourne, University at delivered Lecture Finch version 1999) (as updated 1. Fund. Monetary International necessarily author, are Views paper. reflected adequately havebeen comments, helpful their Soros George Finch, David Citrin, Dan assistance, research Adams Claire grateful Relations Foreign Council (1999); view, balanced argued It 3. Thailand. 8.0% Philippines, 0.5% Malaysia, 6.8% Korea, 5.5% Indonesia, 13.7% by declined have estimated GDP 1998, In 2. (1999b). presented architecture new sector official analogy, By contagion. obscure allowed not should fact This weaknesses. structural policy major had affected badly most countries all because A epidemic. nonetheless it but health, withweaker those strike epidemic after expressed frequently view contributing factor has history little no was existing as defined contagion study, (1997); Eichengreen instance existence On 4. inevitable. looking post,of ex experiencing paribus,tobe ceteris likely, more there if For countries. country another expensive: quite Reserve 6. http://dsbb.imf.org. Board, Bulletin Standards Dissemination IMFs accessed can SDDS 5. (1999). al. et Dornbusch see contagion, on literature recent fee high. annum, per 5% approximately reserves dollar additional an holding cost LIBOR, above points basis 500 say at, borrowing undertook IMF 1997 Late 8. 4, Times,June instance, for See 1999. June adequacy capital approach changes recommended Committee Basle 7. rate. this below well likely credit line below, discussed be will which 1999, April established (FSF), Institutions. Leveraged Highly or HLIs, to reference activities.Hence same engaged were banks, investment some including institutions, other many that concluded and crisis Asian East in funds hedge role the a undertaking also is Forum Stability Financial The 9. HLIs. centres. financial offshore of formidable revised am comprehensive guide medical further habit, review contingent study

PR9914.htm) (http://ww.imf.org/external/np/sec/pr/1999/ 99/14, Release Press 12. www.imf.org. information other PINs 11. sectors. public both provision data improving andAccountability,containssuggestions report, G-22 1998 10. Fischer Stanley is CCL arrangements precautionary difference entitled. are they which funds drawing by precautionary, arrangement treating past option from Borrowers 13. CCL. description justify that problem payments existing an has have order programme those available made be would CCLs whereas arrangement, developed arrears into lending deal. part their agreed had private until financing obtain not could effect country creditors, favour creditors countries between bargaining balance tilted policy This 15. IMF See 14. position. Barry Bank. World Mimeo, Stopped. Be Can Spreads It How Contagion: Stijn Claessens, C., Y. Park, Rudiger, Dornbusch, (August). York Architecture.New Future Commission (1999). Relations Foreign Council Press. University Markets.Princeton:Princeton Econometrics The C. Archie MacKinlay, W., Lo, Y., John Campbell, Paper.(http://www.bis.org/publ/index/html). Consultative Supervision: Effective Principles Core Supervision Banking Committee Basle References architecture. than rather decoration interior as it describe approach Critics 16. difficulty. this a Toward Carl Lindgren, David, Folkerts-Landau, 98,pp.122. Economics,vol. Journal Scandinavian Tests, First Crises: Currency Contagious (1997). Charles Wyplosz, Andrew, Rose, Barry, Eichengreen, Economics. Institute DC: Architecture.Washington, arch.htm) System.(http://www.imf.org/external/np/exr/facts/ Architecture Strengthening Progress to AGuide (1999b). html) Crises.(http://www.imf.org/external/pubs/ft/series/01/index. Resolving Forestalling in Sector Private Involving (1999a). Fund Accountability.(http//www.imf.org/external/np/g22). and Transparency on Working the Report (1998). Twenty-Two of Group Fund. Monetary International Stability.Washington,DC: Financial for detailed normal strong response New Framework

Transition and Stabilization, Policy, Macroeconomic

1994, June England celebration tercentenary Banking ModernCentral Iwrote Introduction ends paper Treasury. made were decisions rate interest received had still when open could operation its basis legal change attempt especially it, fix dont broke, aint if argument Japan. Bank Bank, Central European System, Reserve Federal by not reasons, different For Sweden. Zealand, New Canada, Australia, countriesamong industrial smaller Africaand South Poland, Mexico, Korea, Israel, Chile, Brazil, them among countries market emerging particularly world, increasingly accepted That preferred as targeting with bank central case makes chapter growth. consequences adverse any without there keeping 2.5% level target long-run around down bringinginflation in remarkablysuccessful then British pricestability. ensuring task set grant was government Labor newly-elected act first almost later, years Three bank. of independence from benefit would States United reason primarily is it good, be will chairmen all Not Greenspan. Alan Volcker Paul chairmen, outstanding under happened that But successful. remarkably been has 1980s early since policy Fed box. a operates ECB The policy. for framework coherent This targets. inflation and growth money being pillars the policy, monetary to approach pillar two time plea Pandoras more so-called

achieving charged continues, while recover economy argue Advocates clear. makes experience Japanese which something economy, bad be also low recognize fails This percent. targeted below rates willing being approach, asymmetric appears soas excessively policyprobably operating close comes ECB practice targeting, about rhetoric pragmatic far targeting.Inpractice tomonetary devotion Bundesbank opposition historical reflects approach Fischer Stanley operate cannot responds rate. A hyperinflation. produce so argued Governor Sometimes could. much foreign assets purchases expand refuses for no, answer can all doing whether turns argument The deflation. suffers country efforts, best despite when, accept unwilling probably world rest depreciation, rate exchange part effectiveness its gains expansion namely exist, does constraint policy. run has than more done have BOJ However yen. depreciation real Rather, reputation. BOJs damage further target achieve to failure Japan, targeting adoption formal from come could gain major any 2002) end (the circumstances current under convinced not out carry define Japan Bank a introduce inflation, positive producing goal stated policy, monetary expansionary matters two or one abating. deflation soon as regime inflation-targeting I policy-making. bias inflationary underlying an of existence on based was view government. choose bank argues it particular, In 1994. in chapter this writing since views my changed because is That bank. central with consultation after targets, inflation set should government that say and presumption the reverse now massive am believe would

7 Chapter Introduction I pragmatically, More paper. sentence second emphasized importantas accountability legitimacy democratic prescribed targets determines country each precisely believe present denying governors practice deplores growth, between tradeoff must policyframework anymonetary emphasizes chapter structure. traditions own thecountrys light determined A impact contend had Several center-stage. kept are effects longer-run ensuring while output on impacts short-run take allows It tradeoff. dealing best probably out years two approach Englands Bank me persuaded has experience Subsequent problem. solution leads often fight yet do we Nonetheless, end. markets foreign intervene time from banks countries, dilemma. left is bank occur, does deployment But deployed fiscal then matter, performance export because matters, real if argue can target, thanone muchmore achieve cannot tool one since Alternatively, decisions. affect independently not current value implies That inflation. affects it extent only account into taken be behavior that argued have some targeting, spirit Consistent time. over dissipate should effect this principle In rate. appreciation a required This policy. anchor their hadlost countriesthat for targeting adoption recommended frequently IMF 1990s, During regime. policy monetary inflation-targeting an rate exchange with to how about thinking way systematic question The framework. legal changes and bank, central in models forecasting inflation development the including preparation, of deal now priori clear tightening good great

I digit double low reached had couldbeadoptedbeforeinflation whether 20012002, Turkey instance arose, Fischer Stanley indicate useful losing banks risks but percent, up higher, even indicating addressed can problem That supply. short credibility introduction deferring low, when If control. predict difficult extremely range, 3050 above At range. annum per percent 2530 below comes until have probably then situation), countries few now are there fortunately (and triple-digit stabilize needed put level from down itself help rate exchange temporary lead likely be would so doing since long, very peg that stay not country targets. around band broad though Even institute cannot as range target an indication some provide should inflation, rates high at regime is decisions. price own its focus sector private helping progress use Friedman 1950s, In evidence. empirical theory interaction a conduct day-to-day combines clarified. monetary inflation-targeting case economics, into absorbed were developments these As output. tradeoffs long-run short-and difference reasons policy, discretion rules distinction both 1970s policy economic approach game-theory development revolution expectations rationalPhelps. withEdmund along Friedman, Milton by made being also here contributions key one with 1960s, in clarified was output and inflation between tradeoff nature The discretionary out carry to bank central allowing than rather rule money-growth well. works it And policy. of goals the for believe time wider formalinflation-targeting crisis. government formal way real result simple

a absence contrast summarised trend domestic maintenance shifted focus 1970s, 1960s strength gathered Woods theBretton destroyed that forces as Then, production. levels maximum employment full promotion both included typically revolution Keynesian heyday Depression Great 1940sin 1930s passed legislation given currency. value external system protecting responsibility on took century, nineteenth during developed As issue.2 note order bringing by often system, financial develop help governments, provide up were banks earliest decisions. important critically make who those public accountability principle pressures political from bank shielding benefits also should They spending.1 government financing temptations expansion effects long-run shortbetween conflict inherent tendencies inflationary around revolve banking central modern theory practice The Introduction Fischer Stanley Banking Central Modern prices. level general stability maintaining achieving objective economic directed policy monetary implement formulate to is function primary The 1989, Zealand New Reserve out set goals specific very and 19463 Act in England of Bank the for mandate

output; level affect policycan that possibility deemphasise inflation against fight emphasise come increasingly years,central recent goals. legislative conflicting interpreting chosen cases legislation, them out set mandates banksthe goals functions reviewing this Istart Fischer Stanley independence. credibility, issues such about analytically talk can economists time, first For policy-making. academic changed radically models game-theoretic sophistication growing macroeconomics revolution expectations rational inflation. costs economic off, tradecurve Phillips views changing next turn I chapter remainder In policy. lessons practical draw discretion, versus rules credibility analysis relevant describe briefly charter describing Iconclude evidence. empirical analytics, its independence, issue key perform world around Mandates Functions Bank a play commercial reserves hold Central reserves. rate responsible jointly fully bank. to implementation leaves rates, on decisions makes ministry finance Treasury Britain, Sometimes, rates. interest market determining correspondingly money credit supply have terminologyall earlier an issue bank role basetheir monetary over control their Through functions. function. banking development havea thecentral country; group policy only sometimes best be may department research debt; national part or all manage they controls; exchange foreign administer often banker; governments usually is bank central The insurance. deposit administering countries some resort, last lender as serving institutions, other and banks supervising by system, financial of stability promoting for responsibility given are Most system. payments the managing in therefore will concentrate modern variety

particularly Acountry, Banking Central Modern having from benefits many derives country, played all have Mexico Italy, Israel, banks examples, of, reputations capacity respected highly professional, I But countries. their stabilisation about bring helping role take carried some bank, responsibility generally supervision Commercial tasks.4 these responsible shares frequently though determination, divorcedfrom hardly can reserve foreign rate Exchange responsibility. accompanies functiontypically resort oflast lender rates. market thus money, policy function, essential concentrating by paper, banking on perspective creating avoid To agency.5 there banker, not Whether agency. another or treasury left best national policy, low service debt keep desire governments 4 August Act currency.6 goal primary its consistent this extent only Government, required also it currency; safeguarding with policy conduct directed legislation. in specified often deployed be should power which towards rates, determine independence sufficient has where countries In power. enormous potentially bank money supply over Control bank. central flow, cash management authoritys fiscal between coordination a given Federal The stability. producing charged Zealand New Reserve Bundesbank, Like government support obligation overrides mandate stability that provision without but mandate, Bundesbank similar is This policy. economic overall Governments framework within stability, price ensuring aim France de Banque gives 1993, December 31 amended Bank for out set clearly no are There rates. interest long-term moderate prices, stable employment, maximum goals effectively promote as so production, increase potential run long economys with commensurate aggregates credit and monetary the of growth long-run maintain to charge,7 general developing key will narrow separate conflict need more

there indeed England; Fischer Stanley independent specifying difficulty pursue transactions, payment facilitate circulation, money countrys regulate to required is National Swiss instance For priorities. own their setting in succeed may banks multiple, or unclear either goals Where agency. country interests serving policy monetary . this understands The year,8 last Committee Service Civil Treasury Commons House explained SNB As a presents 9 system. financial soundness foster stability maintain to as described commonly its that states activities, economic general nations enhance it requires legislation 1942 Bank Similarly, disposal. its at instruments stabilitywith ensuring 1 Industrial total countries Description Percent Number Value sample Full bank Central 7.1 Table relative emphasise they which to degree scaled The (1992). Neyapti Webb Cukierman, by studied been have charters whose banks, central seventy-two legally-specified of 6 0.8 Only government) override (can 1980s. the for are Data Note: A.1. table 1992, al., et Cukierman Source: 72 Total Norway Japan, price France, Belgium, 21 15 0.0 not but Objectives U.K. Sweden, Italy, Canada, 14 10 0.2 objectives No tives U.S. Zealand, objec-New incompatible Iceland, Australia, 31 22 0.4 Spain Luxembourg, objective compatible Denmark, Austria, 24 17 0.6 and stability Price Netherlands Ireland, Greece logical non-independent credit whole. mandate tabulation 2 8 3 Finland, primarily Germany

together mentioned one explicit an either two-thirds true also is bank; include group country industrialised sample overall countries Two-thirds 1980s.10 legislation existed goals are These goals. other Banking Modern showed 1958 original Curve curve. history well-known from starts answer run? prices output both affects policy monetary when be, this Why inflation. low stability assuring task primary sole given bank whether question on focuses mandate role over debate Increasingly, stability. price emphasising mandates interpret targets, solepricestability or haveexplicit do seen, we And, Mexico. Zealand, New Banks, Central System European join plan others France them among table, up moved banks central several tabulated, were data since period In employment. full maintenance example for goal, qualifies surely Acentury Kingdom. wage between relationship represented concluded time economists some besurprising not should so a appearance presented through experience less, None run.11 longer maintained trade-off same think wrong would it run, short with dealt discussion warned curve, view presenting after who (1960), Solow Robert Samuelson Paul by States United brought The unemployment. higher terms costs their against balanced be to have lower benefits which in government, facing choices menu predicted (1968) Friedman Milton (1967) Phelps Edmund 1960s end before even us,12 tell textbooks As story. beginning the only was course of that But 7.1). (figure increased gradually inflation and declined steadily unemployment as trade-off, curve Phillips conflicting century-long long simple

a price causes excess asserts which demand supply law example rationalised phenomenon, an presented been had Phillips shift. curve prediction their supported certainly 7.2, shown decades, two next experience The accelerating only lead so do attempts rate, natural its below permanently kept not could Unemployment experience. inflationary actual as shift 19611969. States, United unemployment, Inflation 7.1 Figure Fischer Stanley 174 below. off tradelong-run question return shall We trade-off. run longform simple any is there empirical 7.2 figure in seen facts unemployment; inflation between trade-off along-run assuming for basis theoretical destroyed This inflation. of expectations reflect adjusted be therefore would increases nominal wage, real the about bargain negotiators wage that out pointed Phelps and Friedman rise. to good

for could authority so 13 adaptively, formed were assumed Phelps Friedman natural from differ to permit in errors it curve, Friedman-Phelps 19611993. States, United unemployment, Inflation 7.2 Figure Banking Central Modern with their workersforming accelerated, As rate. accelerating by low unemployment keep a possibility is there accordingly, expectations adjusts account, into takes sector private because output, on effects any has predictable model, his In trade-off. curve Phillips even destroyed (1973) expectations, rational assumption of addition With level. exceed employment level, equilibrium its below remain would wage real inflation, underpredict continually and rate, inflation the affect only can policy monetary systematic that imply correct, if would, view trade-off short-run no Lucas The inflation. andactual expected gapbetween time lagwould

produced recognize analysis sophisticated take does It policy. recessions create can they repeatedly demonstrated banks proposition obvious most not. accepted, widely unemployment long-run while But end. deployed therefore should Fischer Stanley recessions. followed been tighten Fed shown systematically (1989) Romer reduced successfully as 19811982 why remains question prices.14 only affects predictable evidence econometric view accept reason A level. price aggregate stock current information perfect were kind effect unpredictable even model, prices; nominal changes meaning about sellers buyers confusion model (1973) Lucas Because inflation. rate average on depend terms wages. renegotiating prices16 individual changing costs fundamentally more result may stickiness contracts.15 wage overlapping perhaps long-term instance for resulting prices, wages sticky from leverage its gets policy explanation plausible account into taken expansion excess any frequently, have within change In time. rapidly less respond likely are so often, very changed be not need prices contrast, economy, flatter curve Phillips short-run mean would This expansion. in than economy of existence The economy.17 cause or growth,18 money accelerating increase possible always almost it that fact escaping There makers. policymonetary confronting decisions day-to-day the to central output a output, real and inflation between trade-off run longno is there if Even sufficiently. credit tightening by trade-off. second short low high recession

especially many accounts convincing are there while say accurate It public. disliked policymakers denounced intensity matches account lack said often still later, centuries two Almost value.20 lowers excess general such any from country result must disadvantages out, point superfluous it conceive committee Your prices): high case this (in summarily dealt Bullion Gold Price High Committee Select 1810, Commons House Reporting Inflation Costs detail. more higher other consider need We obvious.19 appear policy, expansionary by about brought unemployment trade-off, part one benefits Banking Central Modern presents 7.2 Table quantify.21 difficult have existence, its adapted not I detail, table through than Rather anticipated. been has extent economy structure institutional depend which inflation, costs listing complete 2 0.25, an Assuming percent.23 4.5 19891992 period countries seven these for (CPI) percent. 5.2 was 1992 G-7 GNP ratio average concept be take we simplicity, For rate. nominal respect with demand elasticity relevant magnitude depends area money. bearing interest nonuse economising social costs,22 leather shoeor triangle money cost analysed most inflation. productivity output growth relating work recent discuss on go then and costs, categories major summarise zero, is when 7 currency stock increase zero rate the a as gained welfare The GNP. GDP. percent 0.03 to only amount would inflation in decline that of society reasonably will reduction

a currency, No economy indexed Fully equilibrium) Direct Source (general Indirect inflation The 7.2 Table Fischer Stanley also G9 financing patterns accumulation; resultant with individuals, Potential G610 See G5 lowering stock, increase Offsetting G3 costs) (shoeleather transactions resources Diversion G2 spending. increases or taxes other G1 creditors corporations) (including debtors between rates differences changes induced depends effect receipts; Changes 9. capital product marginal and bonds, ratios, debtconstant given rises levered holders equity Return 8. borrowing cost 7. corporations paid Deductibility rate pretax to relative lending return persons by received interest 6. Taxation base Nominal bill tax real Increased 5. income taxation Progressive institutions nominal effects Real costs) (menu change price of costs Resource 4. wealth net private Reduction 3. currency on Economising 2. tax) (inflation revenue government in Increase 1. liability (outside)

size redistribution functional short-run curve); (Phillips activity level G1719 times different prices 19. provided 18. contract sticky otherwise quantity terms seller buyer fixed services or Redistribution 17. for Existing contracts existing through inflation unanticipated decisions firms; valuation market stock Effects G16 investment therefore rates, Possible G15 LIFO FIFO inventory lived longuse from away shift likely assets; nature depending firms, among vary Combined G1 also See G1011 possible rates between confusion based illusions money other profits; reports Distortion 16. relative streams repayment real Declining 15. mortgages contracts, annuity reliance Continued habits institutions private Real deficit overstatement incorrectly; and income both since misinterpreted rate savings rises, GNP share interest e.g., situation, economic interpretations Distortions 14. in Lock 13. constant remains pre-tax if realized on owners return Post-tax 12. increases revenue Tax 11. declines holders equity to Return 10. government by used methods accounting Nominal gains capital nominal Taxation 5. costs measured sold goods Costs cost original at Depreciation 4. effects equilibrium) Direct effect of Source (general Indirect (continued) 7.2 Table Banking Central Modern

a resulting losses other bankruptcies potential concern Government reactions governmental inflation, over dissatisfaction Public symptoms suppress endeavors government ability planning loss contracts, frequent making transactions Increased G23 accumulation patterns Changes G22 transfers generational interUltimately G20 information relative search need particularly arising Misallocations G19 Shortening 23. asset safe absence prices; prices commitments knowledge without Reluctance 22. decisions make Need future uncertainty Real creditors debtors between 21. sector public private from Redistribution 20. terms fixed contracts debt Existing equilibrium) Direct effect Source (general Indirect (continued) 7.2 Table Fischer Stanley infla taxes, Absent zero. nominal driving balances real economy satiates which rather but zero not is rate optimal that showed (1969) Friedman then available, are lump-sum If inflation. reducing by lost revenues for compensate taxes non-distorting existence assumes implicitly calculation triangle money The rate. square risesapproximately cost this payments, delaying time spend consumers production, expense expand firms departments Financial high. become currency economise to attempting social range, digit triple the reaches When rates.24 inflation low at only apply costs welfare small these course, Of activity investment level direction on effects possible with flows, financial Instability G25 resources misallocations pervasive; possibly Shortages, G24 markets bond intervention rates, of Control 25. controls price and Wage 24. rates interest in rise

even effects potential other positive.25 presumption theoretical clear no provides approach fiscal positive. package, optimal part form tion Banking Central Modern much amount believe hard measured, Menu prices. changes frequent coststhe menu generate small. itself displacement becausethemoney rates, low small bound effect substitution state steady offset This increases.26 as portfolio their balances substitute may savers First, 5 say below anticipated fully any far so conclusion familiar economy. making rises saving on effective Assuming distortions. main two are gains interest deductibility inflation. distorted that system within system; non-neutrality institutional source important anticipated. not often because adaptation nonfrom arise they costs, significant has If indeed. moderate must adapted institutions whose economy there However, percent.28 10 rate an at GNP 23percent amounting cost asocial easily distortions inflation-caused such together, Taken supply. labour would creep, bracket presence decisions. financing corporate affect sectors, among misallocationsof cause inflation with associated rising addition, In inflation.27 higher implied accumulation rates lower calculate possible it assumptions, subsidiary a assumption The rare. cumbersome more generally taxation capital indexation but States indexed been have brackets Income system. tax indexing by removed could them most for inflation, to attributed be should costs these whether question real There practices. accounting and States, United in mortgage nominal level-payment typical the including institutions, sector private into built also is money of value percent, host very constant

decades, two last areas recognition Fischer Stanley norm, Maastricht Taking creditors. debtors larger, Inflation-induced small. estimated States, United least and, shock inflationary depend must redistribution any direction However, labor believed often inflation, entrepreneurs argued (1924) Keynes massive. may which latter wealth, income inflations Unanticipated countries.29 moderate-to-high usage gaining deficit operational notion data, fiscal interest increases inflation-caused effects recognise common become also has reduction 1 thepricelevel increase an percent 60 ratio GDP a because However wealth. on impacts large potentially thus GDP.Unanticipated 0.6percent by increased it cases, In anticipated both rate, rises prices relative thevariability evidenceestablishes body Aconsiderable loses. another what gains group for redistributions, such costs social estimate difficult however It wars. aftermath been have they large, level price changes when so more all That significant. politically economically likely are rates moderate even associated The lenders. other depositors borrowers Mortgage equityholders. nor bondholders neither inflationso from benefit generally not do equities though lenders, their expense at gain to appear Corporations debtors. benefits sector, Within inflation. unpopularity political source one certainly is This young. that increasing old wealth reducing inflation unanticipated with sectors, and public between than rather sector private within intergenerational as viewed be should redistributions these taxes, future reduces debt government of value the in corresponding

point; some reduce want will government likely rate, shocks; real often relationship: this reasons possible several There inflation.31 uncertain high Finally, below. documented between association negative explanation part distortions inflation-related These resources.30 allocation distorts relative variability Banking Central Modern typically increase suggest (1981) Fischer calculations Sample bonds. indexed introduction benefits potential related greater for The it. contend forced savers welfare also investment,32 reducing potentially costly, uncertainty higher cause, Whatever economy. control losing than no create States United recent range within unanticipated, anticipated ramifications many establishes long This cost. costs estimate provide would quantified can list elements those together Adding inflation. rates moderate economy That GNP. 25 percent stable, values inbuilt deeply surprisingly face price deal having disorientation factor Another work.33 hard and merit own their to attribute incorrectly people increases income nominal inflation-caused fruits away takes unfairly belief from derive attitude Some economies. industrialised inflation-averse less even evident are about feelings strong very capture not does enumeration an such true remains it But indexation. by reduced significantly could one albeit cost, social inflation, any horizon over just lie hyperinflation disorders fear be must view Afurther illusion.34 money thatof rarely ofinflation experience important, Most hyperinflations. suffered have countries in vivid more that a or shocks supply problems, other with associated usually is inflation Rather, employment. full sustained at prices growth rate steady popular the cause another Yet control. fiscal of signal rise modest modern 10 sizable form simple lack

grounds indexation, opposed long have bankers, central particularly governments, steeper. curve Phillips also contracts, labour thepresenceoflong-term demand-caused income redistribution wages retirement.35 saving confrontingthose uncertainties bonds, indexed case essential lies Here associated uncertainty greater savers losses debt, redistributions wealth inflation-caused system, tax applies introduction reduced Many Indexation inflation. growth output between association negative generally be must attitude Fischer Stanley [indexation] This 148): p. (1978, Burns words fight.36 continue will weaken against battle failure . despair a event, satisfactorily. problem deal contracts economic redesigning way practical there if extent compared such extents relative on depends effect net inflation: higher cause necessarily not from gains governments bonds taxes indexation Thus, rate. reduce government unanticipated Indexing indexation. types different distinguish necessary is However, Burns. Arthur Committee Radcliffe by given reasons essentially 38 welfare, worsen tends rate, equilibrium increases inflation costs social reduces that change any inconsistency,37 dynamic because bias inflationary has policy monetary which in In 1989). Summers and (Fischer view this for support some provide models theoretic Game people. welfare thepermanent eye an policies governmental pursue needed discipline of sense the lose steadily but slowly would we influence, corrosive its resist than rather inflation, live easy it make to attempted traditions our with confession counsel nation I doubt

extent effects adverse obviously any Britain bonds index introduction nor indexation;39 bond opposed have bankers central Not unanticipated Banking Central Modern argued been 1955), ([1752] Hume David time since least At Productivity Growth, Inflation, better can gains its inflate incentives governments Indexation off. worse make possibly quite likely society costs social reduces Widespread situations. economic deterioration each instrumental was live learned had country view 1980s early Brazil Israel cases from clear certainly However, inflation. fight will weakens generally indexation whether empirically establish difficult be thus It experienced. has economy much how alive keeps he means by increasing; still possible, if stock], [the it keeping only magistrate policy growth: good allow recent More portfolio. their balances substitute investors as capital state steady temporarily would increase an that suggested likewise money models Early riches. power real all consists which labour stock increases nation, industry to strongly points evidence rather but trade-off, curve Phillips short-run not here context The investment. mechanism, of effectiveness the both reducing thereby uncertainty, variability price greater with associated is because example growth, show (1993) Fischer in reported regressions Cross-country inflation.40 growth relationship longer-term a on Based growth. and inflation between association negative eighty for regression measure little spirit predominantly consistently panel

(e.g. points 10 estimated 19611988, over Stanley annum) 15 Estimation 0.4 spline inflationrises. as inflationdeclining marginal non-linear, effects these shows regression range, annum: 015 range on significant statistically barely though A respectively. relationships strong traced can force, labour an growth, accumulation, capital due components its Decomposing 1.25 output create policymakers given indeed, issue; causation dispose entirely not does suggestive, result While sub-periods. both exists out turns It prominent. became shocks which after date 1973, at two into period breaking possibility this attempts (1993) Fischer shocks. impact common reflects merely correlation then shocks, supply adverse caused higher If growth. lower cause increases establish course, not, do associations negative These annum. per 0.18 productivity found (1982) Selody Jarrett case, Canadian In countries. individual examined been also has between association causation. of issue definitively deal difficult extremely impossible either will thus and reasons, other or fiscal for trouble already are rates high countries that certain almost sky, blue with associated was reduction point percentage were, it if causal: large too is effect The rate. percent 5 from inflation in a surely percent, 1.5 by rate growth the increase zero make. to happy be would anyone larger clear one 0.3 decline trade-off

1 increase find they data, Using inflation. growthand ofproductivity rate between related closely examine (1994) 19531992. States, productivity, Inflation Banking Central Modern associated a suggests certainly low. still typically recovery, part early during high high, inflation when cycle, peak near low growth patterns: timing reflects thatthe possibility One causal. relationship whether down pin attempt Wilcox Rudebusch G-7. members other insignificant sometimes smaller significantly it States; that as same almost is UK and Canada estimated The data. States United shows 7.3 Figure case. Canadian than coefficient bigger even growth, productivity decline percent of use by econometrically, issue simultaneity with deal to Attempting coefficient. regression reduces cycle for adjustment an Making relationship. the in element cyclical 0.35 strong

while summary, In versa. vice than rather causes Grangerimplying direction, opposite point tests causality Granger causal, approaches two these While insignificant. becomes typically find Wilcox Rudebusch variables, instrumental Fischer Stanley seigniorage believe However, determining approach presents fiscal Stability Level Price ZeroInflationversus Rate: Inflation Optimal growth. good drawn: can conclusion strong evidence, weak However robust.41 particularly appear does Another large. too equation coefficient causal suspect reason One causal. relationship established yet not evidence statistical productivity growth longer-term relation negative suggestive economy industrialised an in determinant absent rate, positive at growth, andunemployment, trade-off run longno there If manifest. are many have. might benefits costs all basis on determined optimal Rather system. tax suggest would This benefits.42 any see hard motive Wrong, or Right Stability, Price Compare view43 characterises xvi) p. (1972, Phelps inflation. fighting commit plausibly cannot some allow agrees authority monetary once target, credible only zero argument view this Reinforcing I If with it, ring between drawn has then distinction important The zero. be should rate that accept moment Let absurd. is which numbers, higher against as inflation, percent 5.5 for it me let economy, my give to job one but a With stability.44 level price of the and target inflation significant sophisticated nice have

A at keep is, aims central zero, rate targeting. price-level vs. zero Price 7.4 Banking Central Modern achieve failures past consequences undo would committed bank considerable realisation one 7.4, Figure future. distant in less much be should there stability up period, for its achieves Each difference.45 illustrates simulation, error. inflation a With period. from distance their with linearly increases of variance means walk. small. levels future about uncertainty level, stays actual that ensures This level. target and price current between gap half close aim to period each assumed is authority monetary the target, level stochastic random

benefit targeting. price-level vs. zero rates, Inflation 7.5 Figure Fischer Stanley smaller much future distant levels keeps authority monetary disadvantage chief The target. thus targeting Price inflation. not good are shortly, discussed reasons For time. negative will rate short-run time: half economy deflate attempting rates about uncertainty and variability there 7.5, figure been be can true, also economy. fluctuations short-term unnecessary add one idea, with than target century, nineteenth during issued bonds railroad 100-year or leases, 99-year to context this made Reference attractive. more contracting nominal long-term make again once would it because desirable that said sometimes is It rate. inflation a which as 1914 prevailed prices same the Britain, in achieved: was stability level price of measure bad period substantial

provide easier But retirement. saving those desirable Price States. sold recently have some besides, And bonds. 30-year bonds, 50-year improvement economically 100-year case make or leases 99-year difficult 1914.46 1826 period 130 70 only ranged prices 100, setting 1844; 1881 Banking Central Modern maintain trying bonds index issuing retirement stream income targets authority greater much unlikely Uncertainty money. value than rather positive choosing between levels future predictability viewpoint benefit significant Thus rate. I far So sets currency, nominal if cannot bills on negative. interest useful sometimes may First, inflation. for aim not reasons three however There target. accepted frequent more which rates, costs output increase inflexibility downward any Second, times. yield ante ex an having possibility policy monetary deprive reason good no there recessions, during negative been real zero.47 also rate, bill bound achieve struggle should bank central why see hard very It annum.49 percent 1.52 high as States United bias Estimates upwards. biased are measures our Third, goal.48 suggest arguments These negative.50 significantly be point would true when issue years.51 recent in Canada Zealand New Bank Reserve both by specified ranges similar it and years, over setforitself has Bundesbank range practice isin This optimal. wouldbe percent, 13 around inflation, low though to close being Compare remains. less none target 2 at growing is that annum per a achieving of goal the with 1995, January say date, zero versus level price about argument The on. 1995 from year each rate inflation stable constant small 23 lower measured given

asking worth proceed, we Before apparent explain upon called felt economists wonder No justify. could benefits costs account conceivable any higher Canada Italy Kingdom, France, like States, 1970s, end By 9.9 percent 2.8 from rose average 1981, 1960 between completed cycles business four In 1970s. 1960s ratcheted G-7 Inflation Bias Inflationary Inconsistency Dynamic uncertainty. despite preferable, inflationrate greater target view present My level. long-term certainty gain target. with than rates short-term about uncertainty more creating thus errors, past offset attempts authority path,the atarget With case. apply reformulated easily targeting Fischer Stanley Certainly parities. gold fixed back get disinflated States United Britain I, War World after Wars, Civil Napoleonic ends at thus: always percent. 13 rate exceeded countries yes: answer simple policy. indeed there whether nearly stable was level price explained. had have would monetary disinflationary inflation discussed, already As seigniorage. policy economic explanation obvious The countries. most emerged has bias inflationary that fiduciary era only 1914, until for AGovernment words, quoted much 46) p. (1924, Keyness excess: tends one, explicit not tax because But program. fiscal optimal an in used should conditions, certain under . money printingpaper Government, Russian or German time, a up efficacy, its but condemned, method A admitted. be must else. nothing enforce enforce, Government weakest even and evade to hardest finds public which taxation of form the is It other. no it when means this by live can moment wise century tax, long point,

small relatively major But hyperinflations. analysis also taxes. collecting succeed those systems developed countries higher average on why explain helps Banking Central Modern seriously taken nonetheless should aspects fiscal rate.53 produces calculus weight explicit budget), set (the Treasury between separation institutional because perhaps GNP,52 constitute course Inflation bias. provides Nominal unanticipated. is especially plausible, bias renders debt, devaluation unanticipatedfrom was andif brackets, unindexed receive governments gains includes tax,one concept abroader Further, period. increased general taxes spending government as 1970s during account help could considerations Seigniorage countries. industrialised several seigniorage) (including percent six more accounted seigniorage 1970s, GNP; than revenues tax share with anchor combining important, More rational. do not will but adaptive, are expectations if indeterminate produce targeting shown be can Formally, examination. oncloser difficulties encounters argument this However, shock. original validate it doing so In expected curve, Phillips through inflation raise tends output increase from arising one instance demand, money shock accommodates automatically central straightforward: appears The rate. increasing an at upwards including direction, any in move may indeterminate, becomes levelthen down tie to or is, anchorthat has rate, targets policy monetary If 1970s. and 1960s of trends inflationary for explanation a formally, less point same put To determinate.54 level price the target matter no constant rate interest nominal its keeps that bank source larger related

inflation; accelerating an may what, Fischer Stanley fate. suffer need increases, nominal target raises optimal inconsistencyis inconsistency.Dynamic notion That independence. recent most forms bias inflationary explanation should growth, encourage order taxation. arises inconsistency dynamic example simplest expectations. those on acted had public out carry policies public, believed were announcements if authority embody contracts signing by responds If fighting committed announce case In again. happen while all promising it, tax place, capital once be would as rate) natural (the level same because too It be. needs than produce. it unemployment benefit equal just (surprise) cost marginal high sufficiently where point occurs (1983), Gordon Barro (1977) Prescott Kydland due model, theoretic this Equilibrium accordingly. pronouncements its discount authority, face temptations understand sectorwill world,the arational But inflation. through output higher produce tempted bank inflation, rate expected for basis only provides model particular. banking general policy ofmonetary analyses modern fundamental models these heart lies inflation56 and benefits direct between tension The rate.55 equilibrium reduce rates will government persuades change institutional or device Any theory. game language in precommit, ratesto at surprise create not promise to credibly inability banks central lower being from keeps that All rate. inflation also but policy, monetary role a credibility: of definition believes sector private the when credible is third low theory clear

Equivalently, beliefs. acted has private once out sector public interest correspondingly out, carried will Banking Modern contexts: other precisely less used course credibility term inconsistent. dynamically it deals system patent formalised. was notion before well rates low had countries Some rare. levies once, just heavily, capital taxing temptations Despite inconsistency. dealing ways find societies practice, In believed.57 announcements if credible said case making as discretionary demonstration their saw (1983) Gordon Barro (1977) Prescott Kydland Independence Bank Central Discretion Rules, policy. deal can mechanisms one An knowledge.58 creation With lines. Friedman along However disappear. problem inflation, surprise create able not bank place, firmly (1959) Friedmans bank. central independent from cry view led may lags, variable long when effects destabilising potentially on based rule, must argument Barro-Gordon The possible. are activist But rule. carry is there which a proposes (1994) McCallum instance, For proposed. been have circulation changes account take rules sophisticated More prevented.59 would bias inflationary its inconsistency dynamic place into legislated be could rule feedback optimal economy, structure Given output. perhaps inflation least stabilize to helping thereby shocks, offsetting policy monetary active an role 3 at money of rate growth sets that also and years60 four past over velocity base in change the for adjustments with annum, per similar far constant model potential percent

from GNP nominal deviation Fischer Stanley arguments different two Note models. econometric small several performance output inflation good produce shown This path. policy-makers view Friedmans preference disputethe do but bias, an argue Gordon Barro economy. stabilising than rather destabilising activism, excess tempted would case admitted, possibility latter Once activist behavior rigidly rulea then there inconsistency. rest aggregatemust follow bound being cost potential avoiding benefits between such legislating less feedback simple relying notion paid put has year, last Germany 1980s, 1970s many manifested instability demand money The places. times all applicable look we disappointment doomed are we 7), p. (1958, Sayers Richard words down; break eventually will suggest recent much law Goodharts appropriate. longer no cannot There existence. into prescribes rule place putting by inconsistency dynamic problem dealing now provide type McCallum rules context, this day on decide flexibility some given be authorities Rather, rates. interest behaviour or aggregate growth formula exchangerate Afixed policy. judge which against benchmark A seriously. taken if policy discretionary for room little very leaves onethat rule, monetary need system, fixed any In currencies. overvalued with themselves find frequently peg countries prices, traded relative increase prices goods non-traded because danger-free: not is pegging rate exchange But its solve can currency stable areasonably pegs a in acts country key sometimes shows, System Monetary European and system Woods Bretton experience as And problem. bias inflationary own their solving of peg.61 the maintain to impossible it makes that target constant trade-off useful form way

within set remains need becausethe investigated, extensively been issue flexible versus Because Banking Modern I system, appointment proposed (1985) discretionary bias inflationary with dealing while policy monetary flexibility retain To regime. exchange fixed discussion continue not as society who represents First, solution points important two There policy. counter-cylical stabilising conduct discretion still he rate, reduces bankers attainable (relative variability increase rate average reduction between and powers strong are banks Central society. averse expected but policy, activist pursue given bank. rationalisation one provides s averse. excessively means banker, part aversion degree an there Second, banker. conservatism implied policy) optimal independence, measure By function.64 objective its output relative places it calibrating work empirical developed has convention model, Based model. fit seem policy,63 economic overall Governments framework within perhaps stability, price secure at government, overruled banker conservative allow (1992) Lohmann inflation. about monomaniacal being by independent too be can produces This disturbances, small largethan strongly proportionately responds in a add model extends (1994a) Debelle authority. fiscal control from tax inflation remove to independence for reasons of One rule. Rogoff simple better is rule this under outcome The bank.65 overrules actually never that such or bank central the does than spending government on weight more puts which authority, shall whole.62 trade-off socially mandate cost. non-linear way

likely also Inflation bank.66 before decisions makes tends show (1994) results, these Extending spending. its puts weight greater higher shows Debelle revenue. seigniorage receives setting responsible society. Fischer Stanley it. finance forces deficit chooses authority when dominance, fiscal developing possibility include Models independence. effective no With problem. inconsistency out way alternative present horizon, long develop it find may policymaker discount model, model. principal-agent applications come theory game development recent important most policy.67 low pursuing zeal anti-inflationary for design goals defined well(society) appointing Accordingly, active. optimally policy countercyclical banks but policy, monetary of remove Not equilibrium.68 attain can proportion declines remuneration bankers which government between acontract shown have Tabellini Persson (1993) Walsh not. does principal information some access general In interests. principals act bank) (the agent motivate will a where Zealand, New Canada both done rate. consistent dynamically optimal affect shocks any depend made be should approach contracting this in rate The inconsistency. dynamic from resulting bias inflationary with deal contract problem only bank central that assumption on based result This solution.69 best first obtain society enables rate, proportional amount an by her or him penalising society, as function loss same has who banker imposed. taxes indirect and shocks, supply are there if target inflation the adjust to provided is situation sufficiently reputation formula

behave temptation faces principal course, Of out. carried will assume Persson-Tabellini Walsh Banking Central Modern given France, de Banque statutes new Germany taken contrasts It Canada. implemented been emerges approach targeting contract. change costly assumption implicit carries therefore model post.The ex contract changing way inconsistent negotiate while attain, seeks own on decides run shortspecify degree differ they independent, described Bundesbank Zealand Bank Reserve Both stability. mandate describe prefer some precise, Because these achieve follows tactics about Each government. path I inevitable, fight than Rather government.71 from apart somewhat autonomous,70 draw term use continue endowing imagine could one an at independence: defined imprecisely are goals whose independence.A between where Zealand, New those specified precisely may extreme, other At good. doing giving conduct with independence. goal more targets numerical no but stability price A goals. its attain policy monetary deploy power discretion full it when independence has by bound nor independence, instrument have rule a even Thus well.72 as serve would obliquy public monetary, appears models formal in penalty While so. do failing penalised and rate, inflation target achieving responsible contract, optimal In targets. meeting not banker or central for consequences adverse there that is notion general approach. contracting within addressed be can accountability of concept The deficit. budget the finance to required was which bank dynamically shall distinction

Fischer Stanley required being accountable, could mandate twice testifies Chairman which at hearings Humphrey-Hawkins asthe itsperformancesuch hearingson through report, A behave held develop former bias, inflationary have may latter just that, officials expose important An officials. elected well-informed preferably forum, some general more bank. contract makes whoever approach contracting implicit met. if actions specified met, were targets whether judge accountable: whom Asubsidiary one worse perform likely organisation bankindeed than way inconsistent themselvesthat convince even perhaps denyand easily too all bankers temple, within cocooned opinion, they as Shielded bias. poses accountability, formal precise, goal policy where arrangement, is. whereas body, other any accountable formally Zealand. New Reserve or Fed Bank Central European planned accountability contrast interesting an tenure.73 length terms nominal salaries fixing instance done, reason no There pay. their reducing targets, meet failing for board entire penalise possible also would It Governor. primarily must answer The accountable. should bank central in who question subsidiary Another easing by reduced be can unemployment cyclical that unemployment, inflation between trade-off pursuing from it prevent little is there danger: a publish and it, with opinion public take careful very been has practice, In monetary of basis probe to forum right not are events these conferences, press regular holds Bundesbank While policy. anti-inflationary excessive remains. danger the Report,but Monthly year. dynamically deflationary short-run potential socially serious

I independence, evidence turning Before Banking Modern Such percent. 15 say, to, short raised money tightened point could inflation. rising knew Bundesbank 1991 by illustrate, To between trade-off short-run faces continually every fact re-emphasise subsequent some prevented would cost but output increase tending decision, another faced 1993, fall In gradually. fight Instead output. forgone terms currency value maintain Bundesbanks The recovery. slowing expense rapidly disinflating thereby rapidly, rates interest cut chose It rate. decline Nor make. has it choices policy crucial complete from mandate useless easy, too themselves set Economists 88). p. (1924, Keynes quoting Again trade-off. long-run no claim refuge take They employment. full return or inflation, reduce which at speed about judgement right making asked counter-cyclical especially performance, their accountable made to also have low: inflation keeping task given be merely cannot banks why That bank. any guide as countries industrialised eighteen for calculated index, GMT (1991)or Tabellini Masciandaro Grilli, Iuse (CBI).74 independence measures empirical several are There (CBI) Independence Bank Central on Evidence Empirical again. flat ocean past long storm when us tell only can they seasons tempestuous in a there heading: constitution appear provisions Two forth. so term longer governor, appoint not does government if independent more is appointments, Under instruments. deficit; budget financing constitution; government; relationshipwith appointments; headings: five under grouped provisions, legal different fifteen of sum whether and goals; its among stability monetary pursue bank central the that requirement want decision slower far price sufficient simple statutory

19601992, period literature. result empirical key shows banks. commercial supervises rate; discount sets whether head: instruments monetary under criteria two also are There government. disputes hand strengthens provision any index. GMT CBI, Inflation 7.6 Figure Fischer Stanley extend not does it But countries. robust very This independence.75 average negative a there 7.1, table included those countries, these (1992). in examined seventy-two sample independence.76 actual difference to due be must group larger countries industrialised for results contrast The governors. bank central turnover of rate the with correlated significantly positively is that find al. et Cukierman group, this For CBI. legal and inflation between relationship positive significant slightly

I effects, these isolate try To policy. bias inflationary determining factors key as instrument independence) goal (lack mandate strongly pointed analysis preceding parentheses. errors Standard definitionsintext. Data 19601992. inflationrate, mean Dependent Notes: 0.12 (0.51) !0.94 0.42 (0.42) 0.37 0.44 (0.45) 0.41 (0.55) R2 POL7 !1.53 (1.30) (1.61) !1.02 (1.72) EC6 !4.27 !2.28 !1.76 (5) (4) (3) (2) (1) Variable components Inflation Banking Central Modern presence first components.77 three index down third rate.78 discount set government, finance right measures those consists second, INFOBJ. goals; among stability monetary pursue requirement a EC6, EC6. INFOBJ tied closely two shows 7.3 Table POL7. called this government; relationship appointments relating provisions positively (and growth governor, turnover frequency independence, bank measure (inverse) alternative an significant; coefficient growth, negatively independence legal while find al. et Cukierman LDCs, including across-section growth.Similarly, foregone terms in acost at come does countries industrialised for increased associated performance inflation improved show (1993) Summers Alesina and (1991) GMT consequences. adverse no have seems CBI that work empirical result striking The inflation. related significantly not are procedures, appointment relate which POL7, into grouped variables inflation.The with correlated highly most variable single is freely, instruments its use to ability banks central the of break statutory combination

at come seem not does performance improved Thus inflation). 19601992. variability, output Inflation Fischer Stanley presence related, closely or, CBI, to aversion either reflect could results These sample.80 from excluded Greece if disappears significance statistical though significant, positive is these association The CBI.79 constructed GMT which countries 19601992, period over growth GDP variability relationship shows 7.7 Figure growth. lower terms still econometrically issue causation reverse investigated have (1992) al. et Cukierman stability economic produces factor a in index CBI corporatism81 extent both include (1993) Granato Havrilesky CBI. inflation between correlation all nor separately, corporatism measures none that find and inflation, of rate the for cost third negative regression

performance: relevant hardly position argue used sometimes possibility Bunsdesbank. independence Germany responsible much as pattern) Metall IG (with level industry bargaining collective centralised argues (1994) Hall contrast, By significantly. enter together, them Banking Central Modern extreme too This inflation. reducing best people educating recommendation implicit establish. sample (1992) al. et Cukierman seventy-two-country bankas around get able always system political not bank; status legal whatever low have averse, lead will legislation successful obeyed, laws one country And, issue. about think opinion public forcing way no be can There bank. upan setting proposelegislation reduce want who those optimal probably is it exists, causation reverse Even averse. benefit suggests growth costs evidence instance, first In should implies model Rogoff The anomaly. important an remains there independence, bank from gains show results empirical While policy. find expect we then country, systematically differs variance If relationship. account could factors three least At variability. for tastes relative their differed but shocks, same being were a obtain may inflation, credible also independent dimensions. on stabilising at better do would they others, than efficient banks central some if Or, growth. GDP greater having shocks82 bigger by hit are that countries with relationship, efficiency economies, different affecting shocks of magnitude differences both reflects 7.7 figure in variability inflation and output between relationship positive likely, Most changes.83 policy monetary to rapidly more respond economy the makes which bonus position. negative credibility

makers. decision experienced able staffs, research better efficient: It self-imposed smaller suffer thus governments, disciplined be likely banks independent Countries shocks. those respond policymakers which 19601992/3. are Data Note: 0.128 0.101 0.347 0.208 0.0292 0.023 Quadratic 0.08 0.0487 trend Linear Annual against: log residuals squared Sum 1.42 0.88 0.73 rate 0.43 0.69 Variance 0.83 1.19 Mean data Quarterly output, Inflation Fischer Stanley I 7.7, figure Despite below. issue tothe return but strongsupport, receive also would explanation bonus credibility remains banks, sophisticated most that, argue such it Should fighting devoted been its if inflation, had could doubt No inflation. less stable more has The same. were period, over than was German 19601992. period Germany States United growth84 of variability well as rates, growth rates mean presents 7.4 Table States. theUnited instanceGermany for Consider stability. output level price between a is there suggests thecomparisonwithGermanperformance costs, evident no lower with comes greater since yes, say seem CBI on results empirical the While bank? be. bank central their want they averse inflation how decide to have countries that and suspect trade-off trade-off,

pay average on banks implies significant. statistically also positive; overall The independence.85 measure against 1962 since sacrifice show we 7.8, figure In bonus. now return We index. GMT CBI, ratio Sacrifice Banking Central Modern A rate. reduce of point percentage per price a because puzzling, less none it But economies.87 high than inflation low flatter curve Phillips with consistent result This independence.86 recessions loss output between holds relationship positive weaker though tough. being by repeatedly, toughness their prove to have they banks: for markets labor in bonus credibility no is there that suggests 7.8 Figure pronouncements. inflationary antiits believe readily public the and credible, more be should bank central independent higher similar

presence independence) (instrument freely instruments policy its use ability banks mainly attributable CBI between relationship better performance economic average, that, doubt little leaves evidence Fischer Stanley Such banks. with countries output variability price less expect matter, analytic As inflation. lower from part least runs force, more likely provisions where countries, industrialised causation that conclude tentatively We independence). (lack goal stability elements data. aggregate visible appear not does Finally, bank. efficient atrade-off such must data, States United comparing present are Charter struck. shock after down bring long hard fight even markets: labour bonus meet Banks System European participating national requires treaty Maastricht enhanced, legal their had all Venezuela Zealand, Mexico, France, Chile, banks decade, last Within accepted. increasingly becoming independent an out set have we case Central there course, And standard a at come has experience Zealand However, support further provides inflation reducing in Zealands New Reserve years. forty past economy German Bundesbank success independence, third related Closely independence. bank central empirical second policy-making. discretionary bias literature theoretical first foundations. three on based is England independence greater for argument The independent.88 Treasury, subservient explicitly now England, making thedesirability over Britain debatein build.89 pressures inflationary worldwide as operates Bank the well how seen be to remains it and disinflation, general of trade-off credibility Modern prescribed lively time

are:90 here presented evidence empirical theoretical from drawn lessons Banking Central Modern stability; includes mandate, defined intermediate-term announce publicly public; legislature policies justify explain announced it senses: two accountable, carry decision but decisions, override have government; goals; achieve order variables other set authority given 0 debt; public manage deficit, government finance bank central cannot meant by stability, establish primary point.91 each briefly expand me Let floats. long so exchange rates setting responsibility need hence trade-off: curve Phillips deny not inflation. rate average percent) (13 with stability price is mandate state route Netherlands follow can legislation alternatively, implicit; trade-off short-run leaves which primary, as such a relative Treasury, withthe consultation after announced, years three next goals inflation Banks welfare.92 prosperity nations promoting 2 say, of, before public, goals, preannounced its policy monetary performance on testify to required He targets. meeting responsible held Bank Governor met.93 been has target whether judging taxes indirect and rates, interest trade, of terms in changes for made be will that allowances the describe should announcement The clearly cost There separate low qualifier view long-term percent.

publication accompanied testimony ayear.94 twice Committee, Commons aHouse Fischer Stanley probably reputation loss reprimand Public countries. explicit there applied now sanction only questioning public Sharp targets. meet failing imposed sanctions difficult Report.The Inflation lines along responsibility far, so discussed point Although sanction. claim observers British Some Council. or appointed should itself. commends matters economic financial monetary, experience professional standing recognised persons from drawn requirement French Board, choosing procedures detailed describe place issue. this light shed will France de Banque Policy Monetary performance causal; coincidental likely result That standing. members its representation basis geographic where States, United Switzerland, Germany, such countries federal best worked no lasts Council Order targets, override Zealand, New In decisions. Banks overriding aprocedure requires banking central independent nature undemocratic fourteen. short well but years, five than term, approval Finance, Minister the whereby provision Canadian general more . Cabinet issue follow95 as a on out set before pause Bank use threat time, same At by manipulated easily therefore not could policy monetary place, remain Board most realise firing contemplating Chancellor any Bank, controlling means easy an government give seems While resign. have would Governor were, if clear is it and Canada, in used been never procedure public. made be to has directive The Britain. for precedent power. balance right gives This government. the of that with odds at report, sufficient lengthy year. good may

gives targets. setting consult only recommendation government. with targets agree Zealand In Zealand. New those here recommended procedures between difference important Banking Central Modern presents financing management present, them responsibilities. meet enable will tools needs saying without almost goes It procedures.96 override constrained one but independence, measure greater chooses If regime. choose authority should while over control have Thus affect that short-run other no There rate. affects policy rates, floating Under independent. cannot policies Monetary rates. interactions concerns point final rid. best would which While policy. monetary completelydetermined not though essentially then has regime, a government less or more be can bank I 1. Notes independence. responsibilities on take Lady Old allow time it birthday, 300th her On curtailed. sharply is rates interest inflation determine ability independent its system, rate exchange Act. 1946 in embodied was section People; our Benefit Good publick promote desirous being we That ye, know Now starts Charter 1694 Englands The 3. (1994). Schnadt Goodhart, Capie, by conference this paper companion interesting well as banking, central development historical (1974) Kock de See 2. literature. provision discussions King Mervyn Freedman, Charles Crow, John Bruno, Michael andto assistance, research Debelle Guy comments, useful for Tosovsky Josef and Mancera, Miguel Brash, Don Conference, Tercentenary England of Bank the at discussants my to grateful slightly conflict fixed am

normally chosen management opposed system, exchange choice 4. Stanley than rather government Volume 83103 paragraphs (see discussed extensively banks commercial supervise agency another or whether question 5. decision. I 6. crucial. but bank, remain should function supervisory view supports evidence weight ). England henceforth referred 1993;this England,London:HMSO, report Committee Service Civil Treasury a rise unemployment structural second, expectations; impact because down might low first, shift: examples two gave Solow Samuelson 11. Philippines. stability price overriding has bank whose country sample, overall 10. p.165. 9. p.175. II, England,Volume Role 8. 1978. Act Humphrey-Hawkins out set policy goal 7. England. System, Federal Zealand, New Bank Reserve Bundesbank, banks: four directly most distortions presence In welfare. their increase model, Friedman-Lucas workers fooling about brought output expansion wage, real equal leisure value marginal with equilibrium, undistorted an economy If seems. it straightforward analytically issue However 19. hyperinflations. extreme effect no expansions monetary extra possibility care takes qualifier 18. rates. predicting seen be also can model correlated, positively practice its rate since rate; variance lower flatter (1973) Lucas derived short-run The evidence. supporting present who (1988), Romer Mankiw, Ball, by developed is theory This 17. hold. result neutrality Caplinwhich conditions examine (1991) Leahy level; aggregate into translate not does firm individual level at prices stickiness conditions, some in show (1987) Spulber Caplin However, nominalshocks. processes lengthyadjustment generate may contracts overlapping short-term quite even how shows (1986) Blanchard (1977); instance, 15. (1983). Mishkin example 14. inflation. expected actual between gap basis on adjust assumed are inflation expectations is, That 13. 16. chapter (1994), Fischer Dornbusch example, for See 12. 1986). Summers, and (Blanchard hysteresis phenomenon second curve, Phillips expectations-augmented as first discussions, subsequent to central been have possibilities these Both up. shift would curve the that so unemployment, higher of focus

at level, exceed unemployment natural make Banking Central Modern analyses. earliest (1924) Keynes 21. 1978. York, New Press, Arno reprinted cclviiicclvix, Pp. 20. beneficial. socially will level beyond output equilibrium, competition I Italy, instancein theG-7, reserves somebank paid but reserves, bank bearing non-interest includes base Statistics. Financial International data based averages, unweighted are These 23. (1956). Bailey reference classic 22. (1990). Driffill (1978), Modigliani here model, generations overlapping stock; capital state steady affect (1967), Sidrauski models, maximising horizon infinite either: case predictions unambiguous no makes Theory 26. holdings. not under conditions establishes (1988) Faig model. latter (1991). al. et Chari (1991), Hansen Cooley analyses, more inflation. analysis tax optimal initiated (1973) Phelps 25. money. demand form functional significantly depends loss welfare shows (1994) Lucas 24. relevant this proportionately rise costs social percent, 7.8 was 1992 G-7 money high-powered ratio average stock. currency with has 10 zero increase calculation, such one contains 27. can. it constraint, GNP percent 0.7 cost also is there stabilisations, analysing In deficit. nominal by caused debt government value decline deducts inflation-adjusted or 29. 28. saving. impact calculating a presents (1991) Huizinga 32. (1981). Taylor (1981) Fischer See 31. (1994). Tommasi (1993) Stulz Reagan see treatments, theoretical recent For 30. tosucceed. programme stabilisation fora needed effort fiscal extra about information provides zero-inflation The stabilised. change might rate real effect, Tanzi through example budget, components other affects because operational This zero. to reduced were inflation if would deficit what estimate an deficit, equilibrium. adjust can rates interest and prices asset since effects, partial from differ may on greater of effects equilibrium general the that though noted be should It themselves. beforecommitting resolution its for wait entrepreneurs as investment reduces uncertainty which in monopolistic draw work cash-in-advance result zero-inflation model

where inflations, percent) (1530 prolongedmoderate survive digit single experience economies remain appears Such 34. hypothesis. illusion this substantiate unable inflation, attitudes polls opinion public examine (1982) Huizinga 33. Stanley used often currency generate could theory new rate. state steady output, affect imply models growth Neoclassical 40. grounds. informational mainly index support indicated Greenspan Chairman Fed testimony, Humphrey-Hawkins 1994 February 22 his In 39. functions. reversed function, loss quadratic usual holds result 38. below. detail more inconsistency dynamic concept 37. 573. para 1959, Committee), Radcliffe System Monetary Working Committee Report 36. (1983). Fischer see bonds, indexed introduction economics welfare discussion For 35. value. store account I 42. G-7. among speaking Englishonly significant coefficient puzzling It 41. inflation. effect rate produce will which Canada, Bank intensively discussed been issue 44. view. share does Phelps quote, persuasiveness Despite 43. ways. other revenues raising difficulty have countries positive justify motive revenue possibility out rule want 45. shortly. topic volume et p.et,where inflation With term. disturbance uncorrelated aserially t p"0:5.p"p%..et. p. given target, level may There (1991). Summers due 47. (1924). Keynes Data 46. t"1 was but depression, great pointsduring werenegativeatsome known well also bills; denomination large on rates interest nominal negative slightly allow that convenience yield (estimated change quality for systematically correct failure are sources three 49. illusion. money implies argument This 48. bills. features tax special 1 about treatment inappropriate from resulting (the bias substitution outlet annum), per recording practice by caused is bias bias. logarithm remarkably most stores), lower to shift a $2as asubsequentincreaseto and percentdecline, a50 $1as $2to say from, in last Each changed. not has it though even percent, 50 risen having as shown be would good the of price The rise. percent foreign unit do conference zero small gradual decline 100

account estimated sources two Banking Central Modern arguing 51. 0.5 only Canada measurement (1993) Duguay 50. point.) discussion Gordon J. Robert indebted am (I annum. per 0.30.4 I target, percent 1 less money, high-powered stock value real defined revenue, seigniorage industrialised most 52. lower would believe reason inflexibility, price downward presence And rates. low very between relationship address do above results regression amount. significant any increase 1percentwould 3to inflation areduction view rejecting implicitly For 3 than amounts sometimes 1970s, Italy including countries, weight much receive should above, argued Nor, 53. GNP. short-run employment bias: an reasons four offers 2, chapter (1992), banking, theory modern work important his 55. (1968). Friedman by developed 1965) ([1898] Wicksell back traces targeting; nominal on 577580) pp. (1989, Fischer Blanchard See 54. system. tax smoothing, interest motive, as revenue treats here whereas inconsistency, lead motives those emphasises Cukierman rates). (under motive payments (1959) Friedmans 59. created. been has once knowledge use allow interests societys but knowledge, new creation provided have incentives case, this In 58. its making was sector private time at anticipated were decisions about credibility allows it because analysis, emerging beyond goes definition informal general more The reality. with inconsistent they if believed be continue not will announcements since definition, formal close This 57. above. discussed gains fiscal and curve Phillips through available output higher both include benefits These 56. bias. cause separate states McCallum 60. rule. optimal feedback no there that argument rather, policy; bias inflationary or inconsistency dynamic problem the of formally rule rate growth a within Fixed 61. velocity. in changes cyclical for adjusting avoid to used is period decisions. policy monetary independent make can banks central whose countries among rates exchange fixed from different potentially are union 13 few country sophisticated balance constant four-year

quote 63. does. than heavily more relative deviations weights levels, target same) (the close levels output prefer assumed society banker both Formally, 62. Stanley acts authority fiscal assumption Technically, 66. option. exercised far so soand doing reasons publish overrule right has government where Netherlands Canada countries experience with fits 65. 7.1. table instance, followed, convention 64. France. de Banque Status Act 1993 such example One 68. (1990). discussed are models reputational Several 67. variables. policy choice its response banks account into taking but first, moving leader, sense makes inflation, targets, announcement out, point 72. 91. p. 1993, Freedman 71. 3. II,paragraph England,Volume Role Goodhart Charles evidence instance 70. rate. inflation related stochastically stockwhich money proportional amount an penalising can best first shows (1993). Tabellini Persson (1993) Walsh obtained result This 69. Zealand. Reserve England Bank office, term her or his during terms nominal fixed governor salary when occurs survive not contract this Zealand, New out pointed As 73. accountability. ensure help to create also (1992) al. et 76. 0.54. R2 !4.6; 8.6 figure shown line regression in t-statistic 75. 19. chapter (1992), Cukierman See 74. country. rest inflicted being misery from benefitting as seen be then would bankers since deflation, a group, entire low very was indexes based questionnaire legally between correlation rank officials. by answered were questionnaires The six twentyCBI I 77. countries. industrialised for (0.33) higher (POL7 political measure intoa down index overall their break GMT 78. (1994). Fischer Debelle on here . EC6 is which independence, economic of one and banks. commercial supervises bank central the whether indicates that variable dummy translation Stackelberg device protracted questionnaire-based bit draw INFOBJ),

still we output), log (of trends Using growth. rather level, target its level deviations penalises literature function standard 80. any decades), (in GMT related negatively significantly find growth index) own their GMT, Alesina (1988), (Bade-Parkin alternative examine Schaling Eijffinger 79. Banking Central Modern 91. 1993. same essentially recommendations 90. 1994b. Debelle Australia. those favorable more were 1993 end at Zealand expectations inflationary however Zealand; disinflating successful almost Zealand, New than independent less much bank central whose Australia, 89. Commons House Vibert (1993), 88. attached. which paragraph 17 note 87. CBI. regressed 1.96 7.8, figure 3.8 measure CBI on t-statistic 86. Ball from are ratios sacrifice underlie loss (1993). Posen Adam independently discovered was This 85. trends. quadratic or linear around hold results Similar 84. rate. optimal socially unemployment rate natural wedge differ countries positive also would relationship out pointed has Rogoff Kenneth 83. spending. government variability greater instance self-imposed, could shocks These 82. sector. public size government, leaning leftward two labour, organised power measures three include They 81. variability. inflation between correlation insignificant but become Britain if Treaty Maastricht conform need here account into taking I Thus ignored. not output affect can fact 92. EMU. is sentence last demand. in fluctuations short-run mitigate naturalcountercyclicaltoolto seemsthe therefore Fiscal far]. so [Correct, sustained. must effort long-run this and inflation; deal to instrument prime be should only affects eventually Because 9) (p. states it when (1993) al. et Roll by report excellent otherwise with a using form take may adjustments The 93. performance. economic worsen will policy monetary countercyclical use prevent that arrangements sequitur.Creating 5. p. 1994, Report,February Inflation Englands of Bank the example See RPIX. as such inflation, measuring for index price am member disagree non special

2 Economy,64, finance, inflationary cost welfare (1956) J. Martin Bailey, (October). Ontario Western Economics, Department policy, laws Parkin Michael Robin, Bade, 151162. (May), Banking,25,2 Credit Money, evidence, comparative Some performances: macroeconomic independence bank Central 619630. Inquiry,25, policies, fiscal coordinated nondiscretion Rules (1987) Tabellini Guido Alberto, 1351. Annual, politics, Macroeconomics Alberto Alesina, References suit. follow could Britain reason no there successfully, so done Zealand, New Canada as such traditions, similar with Countries here. discussed type arrangements up set impossible make tradition parliamentary 96. 161. p. II, England,Volume Role The 95. independence. gains Bank question to authority want should changeand wants it decides legislature if change surely can That States. United have committees Congressional standing Committees Commons House give not does system British that claimed sometimes is It 94. a in policy monetary theory positive A (1983) Gordon J., Robert Barro, 165. Activity,1, Papers Brookings trade-off, output-inflation economics Keynesian new (1988) Romer David Mankiw, Gregory N., 4306. number Paper, Working ratio?, sacrifice determines What (1993) Larry Ball, 683708. Economics,106,3 output, money dynamics pricing State-dependent (1991) Leahy John Andrew, Caplin, 1994. Press, University banking, central development (1994) Schnadt Norbert Goodhart, Charles Forrest, Capie, Institute. Enterprise American Maker.Washington,D.C.: Policy Economic an Reflections (1978) F. Arthur Burns, Annual,1578. Macroeconomics NBER problem, unemployment European the Hysteresis Summers H. Lawrence MA. Cambridge Press: Macroeconomics.MIT on Lectures (1989) Fischer Stanley and Olivier, 543565. (Aug), Economics,101,3 Quarterly spiral, wage-price The (1986) Olivier Blanchard, (Aug),589610. Economy,91,4 Political of Journal model, rate (April),93110. natural

Banking,23, moderate welfare Hansen D. Gary F., Thomas Cooley, 519539. 2), Part (Aug, Banking,23,3 Credit Money, results, recent Some policy: monetary fiscal Optimal (1991) Kehoe Patrick Christiano, J. V., V. Chari, 703726. (Nov), Economics,102,4 Quarterly money, neutrality Menu (1987) Spulber Daniel Andrew, Caplin, Banking Modern 3 6, Review, Economic World outcomes, policy effect its banks central independence Measuring Neyapti Bilin Webb, CambridgeMA. Press: Evidence.MIT Independence: Credibility, Strategy, (1992) Alex 2),483503. A (1994a) 2127. Bulletin,53,1, Reserve 1989, Act Reserve S. Dawe, (December),95140. Policy,39 rates, real investment, growth, independence, Webb Steven Summers, Lawrence Kalaitzidakis, Pantelis Alex, Cukierman, 353398. should independent How Guy, Canada, Zealand Australia, inflations: small three ends The (1994b) Guy Debelle, lunch?, a as functions it when tax Characterisation (1988) Miguel Faig, February. Netherlands, University, Tilburg evidence, Theory independence: Central Schaling Eric Sylvester, Eijffinger, Canada. Bank zero versus stability price thoughts Some (1993) Pierre Duguay, Amsterdam. Holland: 2.NorthEconomics,Volume Handbook (eds.), Hahn F. Friedman B. inflation, Costs (1990) Ulph Alistair Mizon, E. Grayham John, Driffill, York. New Hill: edition.McGraw Macroeconomics,6th (1994) Rudiger, Dornbusch, Press:NewYork. Martins edition.St Banking,4th Central (1974) M. Kock, de April. MIT, mimeo, be?, bank 1 Economics,22, Monetary exchange, (1986).) Fischer (Reprinted 542. North-Holland, 15, Vol. Policy, Public on Series Conference Carnegie-Rochester Inflation, Consequences Costs The (eds.) Meltzer H. Allan Brunner Karl in II, inflation: costs understanding an Towards (1981) (Feb),163190. Economy,85,1 Political of Journal rule, supply money optimal the and expectations, rational contracts, term Long (1977) Stanley Fischer, 137148. (Aug,Part (Sept), free medium ( July),

3 Economics,32, growth, factors macroeconomic Amsterdam. Economics,Volume2.North-Holland: Handbook Hahn F. Friedman B. discretion versus Rules (1990) Cambridge MIT Policy. Indexing, (1986) (Reprinted MA. Press:Cambridge Indexation.MIT Debt, Inflation, (eds.) Simonsen H. Dornbusch R. bonds, indexed issue government aspects Welfare (1983) Stanley A stability: Designing Charles 382387. (May), Proceedings,79 Papers Review, inflation? with live to learn governments Should (1989) Summers Lawrence Archiv,114,810832.(Reprinted Weltwirtschaftliches inflation, costs effects real understanding an Towards (1978) Modigliani Franco (1986).) Fischer (Feb),119.(Reprinted Banking,14,1 polls, opinion unemployment, Inflation, Huizinga Stanley, Fischer, 485512. Company: Brace Reform.Harcourt, (1924) Maynard Keynes, (Aug),361367. Statistics,64 Economics Review 19631979, Canada, nexus productitivity-inflation (1982) Selody G. Jack Peter, J. Jarrett, Madison. Wisconsin (ed.). Economics,E.Rotwein Writings D. Money, Of (1955) David Hume, 521549. 2), Part (Aug, Banking,25,3 Credit Money, Journal manufacturing, U.S. investment price relative uncertainty, Inflation John Huizinga, 249261. Choice,76, autonomy, central vs. structures Corporatist performance: inflationary Determinants (1993) Granato James Thomas, Havrilesky, Society. Politics German forthcoming, Europe, Germany interaction Their bargaining: wage coordinated independence bank Central (1994) A. Peter Hall, 341392. (October), Policy,13 countries, industrial the policies financial public institutions Political (1991) Tabellini Guido Masciandaro, Donato Vittorio, Grilli, Company:Chicago. Publishing Essays.Aldine Other and Money Quantity Optimum The M. in money, quantity optimum (1969) Freedman, 117. 1(March), Review,58, Economic American policy, monetary of role The (1968) York. New Press: University Stability.Fordham Monetary for AProgram (1959) Milton Friedman, (December),8594. Policy,39 Public on Series Conference Carnegie-Rochester (Dec), comment,

( Economy,85,3 Political plans, inconsistency discretion: than rather Rules (1977) Prescott Edward Finn, Kydland, Modern 1 Review,82, flexibility, versus Credibility policy: Optimal (1992) Susanne Lohmann, Review,63, tradeoffs, output-inflation evidence international Some 273286. accountable: Independent al. et Eric Roll, (November),11691190. Economics,100,4 Quarterly target, intermediate an commitment degree (1985) Kenneth Rogoff, 2),585601. (Aug,Part Banking,25,3 variability, price relative costs, Contracting Stulz Rene Patricia, Reagan, December. University, Harvard fix, institutional behind politics The low cause not does independence bank Central Adam Posen, 299. 283 (Nov), Economica,25,4 1957, 1861 Kingdom, United wages money change rate between relation The A. Phillips, 6782. Economics,75,1, Swedish finance, public theory Inflation (1973) NewYork. Theory.Norton: Unemployment Inflation (1972) 254281. (August), Economica,34,3 time, over unemployment optimal inflation, expectations curves, Phillips (1967) Edmund Phelps, 84. (December),53 Policy,39 Public on Series Conference Carnegie-Rochester institutions Designing (1993) Tabellini Guido Torsten, Persson, Press: Chicago Macroeconomics.University to Approach ARationalExpectations (1983) Frederic Mishkin, 4692, No. Paper Working Research Bureau National stability, financial rules Monetary T. Bennett McCallum, Chicago. University inflation, cost welfare On E. Lucas, 326334. A matter? Does (1989) Romer Christina, Romer, October. Research, Policy Centre London: England. Bank for mandate 2 Review,50, Economic American policy, anti-inflation aspects Analytical (1960) Solow M. Robert A., Paul Samuelson, April. D.C., Washington, Board, FederalReserve mimeo, interpretations, Evidence inflation: Productivity (1994) Wilcox W. David D., Glenn Rudebusch, Annual,121170. Macroeconomics NBER Schwartz, Friedman spirit the in test 3 Banking,23, and Credit Money, of Journal determined?, be policy monetary long-term should How (1991) H. Laurence Summers, Press. Clarendon Bagehot.Reprinted.Oxford: After Banking Central (1958) S. Richard Sayers, 625631. 2), Part June),473492. (March), new (May),177194. (Aug, June),

a growth patterns choice Rational (1967) Miguel Sidrauski, Fischer Stanley Classics. York.Reprints M.Kelley:New Prices.Augustus Interest (1965) Knut Wicksell, Francisco, San Reserve Federal 9302, Paper Working reappointment, measures performance information, Private bankers: central independent for contracts Optimal Carl Walsh, May. Forum, Policy European London: Treaty. Maastricht England Bank independence (1993) Frank Vibert, Review. forthcoming, inflation, effects understanding Towards markets: search instability price consequences The (1994) Mariano Tommasi, 5785. North-Holland, 15, Vol. Policy, Public on Series Conference Inflation,Carnegie-Rochester Consequences Costs The (eds.), Meltzer H. Allan Brunner Karl in rate, average inflation of variability between relation the On (1981) B. John Taylor, (May),534544. Proceedings,71 and Papers Review, Economic American economy, monetary

period during crisis financial market emerging Almost Introduction occurred operated country program, every And rate. its informally formally As freely. float allowed post-crisis case no But up, given be eventually would they sustainablemeaning not were systems developed countries, industrialized among system Woods Bretton transition earlier experiences, these choose had markets with voluntarilyand peg I Correct?, View Bipolar Is Regimes: Rate Exchange regime. uses view sense make seeks 2001, January Association Economic American meeting annual development explains It regimes. more Union) Monetary European prominently most unions, currency (including towards regimes, soft-pegged from away moving been countries shows chapter This staff. IMF by produced categorization says trinity, impossible run simultaneously cannot objectives, domestic at aimed policy a alternative flexible describing flexible of instead floating second intervention. without freely, floats which those or pegs hard either are regimes rate viable only that arguing as paper interpreted have some for bipolar, word the use to was first The chapter. this in mistakes terminology two Imade account. capital open an and rate, exchange pegged collapse very presented new result monetary softly

(ii) sustainable; are flows:(i) international open for thesis its summarizes chapter rate. Fischer Stanley along arearrayed exchangeratearrangements which diagram, imagined terms point same goes then It original). (italics movements indifferent will countries most expected (iii) possible; remains arrangements variety unsustainable pronounce rather corners, but everything out rule bipolar intent the right: floating freely left pegs representing line view This arrangements. pegging soft hold, what cautious very attackI when time 2001a January official IMF an speaking Second, adopted.1 should regime flexible sort touches only First, comments. four just make me Let it. support evidence theory both was, it As pegs. about could difficulties adjustment times several shocks. adjust unable imply seems argument trinity impossible differently, Put (Highlight) policies. poor shocks economic adverse immune hard quickly how case by reinforced lesson unfortunate Another costly. decide simply country circumstances such under shocks, extreme defend needed may too fiscal sufficient, not that shows The peg. maintenance dedicated policy monetary provided work face weakened be can imposed authorities after later, years two than Less strong. extremely was Argentine 2000, beginning At contains paper Third, weakened. severely become had peg, faith lose began depositors and debt, servicing keep to attempts in system banking on measures rate exchange use discussion a even open, account capital When inflation. high from disinflation during anchor I shows. experience Turkish recent the as dangerous, is type this of peg wide segment still believe said referred pegged financial crisis. series short nominal temporary would

8 Chapter Introduction than less lasting short-lived, be to needs peg temporary such any emphasize while that emphasizes paper Fourth, a describes (1998) 215 no. Finance, International Essays Princeton: Times, At or Countries All for Right is Regime Currency Single No Frankel, Jeffrey 1. Note 2002. Brazil home driven been unfortunately has lesson That dynamics. debt adverse caused crises prevent not does it 1990s, in countries pegged-rate many so by suffered crisis financial external type probability the reduces arrangements. rate flexible of now year. range

way 2000has Argentina Brazil Russia 1997, Korea Indonesia, Thailand, 1994, 1994Mexico since market-related major Each Fischer Stanley Correct? View Bipolar Is Regimes: Rate Exchange instance, (for choose need view, solution, corner bipolar, form take tended has warning That flows. capital international open for soft peg adjustable use stronglyagainst warned these dealing involved policymakers then, wonder, Little rates. with market emerging afflicted type crises avoided 1998 Turkey Mexico 1998, Israel Africa, South them ratesamong did time, same At regime. pegged from derived shown categories three 1999. 1991 member IMFs rate distribution change shows Figure sustainable.1 not pegs hard between policy intermediate but float, currencies their allow to board), currency, national no countries where situations and boards include 8.1 figure pegs hard arrangements 143).2 141 (pp. Fund Monetary International 2000 Report Annual in presented is regimes exchange facto de classification detailed a floating, independently as either described are systems whose economies contains group floating The country. other some of currency adopting formally by dollarized have they because or union intervene may bank central the while that means which float, fixed more managed

about bring trying not market, parentheses. number Note: IMF. Source: regimes, countries: All Figure Fischer Stanley consists group intermediate range. include these arrangements: currency soft peg; fixed within keeping committed bank central an time; gradually shift allowed is peg peg, range; a been 1991 since has there shows, 8.1 figure As time.3 over move itself rateband theexchange allows which band, movement this significance But regimes. exchange toward arrangements away moving were 1990s, during that appear does it Thus, 1999. did 34 only 1991, had economies percent 62 whereas Correspondingly, percent. 42 23 regimes rate floating percent; 24 to 16 from increased with The floating.4 pegs hard either having countries percentage in increases and range, intermediate or middle the of out particular variety conventional specified crawling thinning

I analysis, refine seeking refined. spelled need sense economic makes under conditions specific Correct? View Bipolar Is Regimes: Rate Exchange (ii) sustainable; flows:(i) statement right effect. dramatic exaggerated probably included viewmyself known now proponents argue along lie if graphically, point put To movements. indifferent most expected (iii) possible; remain flexible variety unsustainable pronounce rather corners, two everything out rule view intent right, with left, on dollarization boards, unions, currency like connecting representing line term (2000) Reinhart Calvo have often will particular, their level about concerned likely accepts argument version This arrangements.5 pegging soft generated fluctuations extent accept willing they because floating, leaves also formulation pressures.6 market toexchange respond policywill intervention foreign possibly case, this rate. float free pegs hard very regimes sustainable committed being viewed government which in systems for is: answer view. bipolar by excluded arrangements what is arises then question The arrangements. gamut full includes it flows, capital international open yet as countries For floats. managed including arrangements, floating a or rate, value systems. band narrow adjustable pegs, rate fixed are excludedarrangements essence, In parity. defending goal sole devoted be to policy monetary enable and constrain both that commitments institutional the made not has but rates, exchange of range wide segment fear totally particular

viable. should term, long viable proved adjustable pointthatfor critical onthe focusing chapter this start Iwill Fischer up take then use viable; expected may hard nature regimes; under policy monetary argument, floating fear issues: I For countries. countries, advanced capitalmarkets: considered groups Two markets. global into integrating integrated systems centers years seven last crises followed thinking fresh Countries Market Developed Regimes Rate Exchange flows. international to open not developing for about said be can what Japan; Europe, States, United rates behavior disinflation; anchor been there too, cases, these In tables among regimes development shows Figure 1999.7 end at place rate exchange also 8.2 8.1 Tables 8.2. These Morgan. P. J. (EMBI.), Plus Index Bond Markets Emerging 17 index markets MSCI that 27 union contained 33 defined is group emerging 8.1. economies, contains This (MSCI). International Capital Stanley Morgan by produced market developed list a with SAR, Kong Hong two other The floating. managed independently either rates, countries Another tender.8 legal noseparate having as listed area euro are 10 mobility, capital nearly or complete have of all 8.1, table economies market developed 22 Of other. arrangements floating side, one on pegs harder towards center, peg soft from away direction, bipolar the in has which Denmark, and arrangement, board will set nominal draw shift currency

* Thailand Africa, *South Russia, *Philippines, Peru, *Mexico, *Korea, Indonesia, *India, Ecuador, Colombia, *Chile, *Brazil, (*7) (13) POC *Taiwan Nigeria, Republic, Czech *Venezuela Lanka, Sri Poland, *Israel, Hungary, (5) bands crawling within Rates Turkey peg Crawling *Greece (*1) (1) Qatar Pakistan, Morocco, *Malaysia, Jordan, Egypt, *China, (*2) (7) pegs fixed *Panama *Bulgaria, *Argentina, (*3) (3) tender/Currency Countries countries) (Number regime exchange by grouped Emerging 8.2 index. Markets listed Economies Note: 2000. Report Annual IMF, Source: States Kingdom United Managed board Currency band horizontal rate Pegged Switzerland Sweden Singapore Norway Zealand New Japan SAR Kong Hong Denmark Spain Portugal Netherlands Italy Ireland Germany France Finland Canada Belgium float Independent Australia tender legal separate No Austria arrangement Other area Euro 1999) 31, December (as economies market Developed 8.1 Table Correct? View Bipolar Is Regimes: Rate Exchange self-explanatory. are numbers asterisked group; each countries of number indicate parenthesis Numbers greater. 2% is index MSCI or EMBI. the either in weight whose country indicates

its pegging still officially but join agreed not parentheses. number The Note: IMF. Source: 1999. 1991 regimes, countries: market emerging Developed 8.2 Figure Fischer Stanley a as system peg sawthe thesystemsmembers,who it commitment political despite successful was attack since telling particularly is example This members. policy inappropriate domestically imposeda had unification Germanys by necessitated rates interest German rise after hold impossible proved It 1993. 1992 attacked currencies EMS which manner from derives nonrobustness belief bands. horizontal within pegs rate exchange adjustable aset (EMS), System Monetary under operating time that at were However, countries. area non-euro similar quite looked would 8.1 ago, Adecade float. nearly pegs, hard very established have half regarded, are countries zone euro how on depending and 8.1, table in listed economies developed among Thus, currencies. European other to for support empirical Part union. monetary of goal the towards band stepping-stone

decade during Furthermore, categories. other belong 16 all dispute group, independent managed be should whether judgment room there While arrangement. form some half Thus, floats. managed having economies. many includes it periodsand sustained viable not influenced most transitions set Colombia while decade, last crises major after floaters became Mexico) Brazil, Russia, Thailand, Korea, (Indonesia, Six independently as described those consists (13) largest arrangement grouped 33 Europe. for single asa euro creation on based mechanisms away move will view Correct? View Bipolar Is Regimes: Rate Exchange a pegs, hard Three floaters. Half 8.2. asterisks with identified are the16 looksat one if similar is pattern The flexibility. considerable point years, over widening been Poland Israel both cases which bands, Venezuelahad Lanka, Sri Poland, Israel, countriesHungary, afloat.Five way given regime,which peg acrawling instituted just Turkey 1999. pegs adjustable Eight Union. Monetary European joining dollarizing 1999) December floater (an group: joined subsequently Ecuador tender. legal independent no or boards currency either had three 1999 at 8.2, table listed 17 remaining Of floating. towards pegged forms various these among Greece 1999, end from ahead Looking continue. likely appears shift This increased.9 regimes fixed floating 1990s declined arrangements rate exchange intermediate number economies, Within Malaysia. and China pegs: soft economies market emerging larger group this in countries the of two Only bands. crawling have Two four. to risen has now by that significant

zone membership too, direction scheduled Turkey regime; floating independently move Israel to. likely Poland Hungary zone, joined Fischer Stanley fact markets.The into integrating integrated period, lengthy over viable proved reason why? flexibility. greater with systems zone), euro creation (especially rates fixed towards some peg adjustable from away moving process economies say reasonable thus It prospect. distant lasted had regimes pegged collapses caused been has economic extensive countries, several capital.10 more countries intense especially problem this lesson home drive all 2000 1994 market emerging 1993, 1992 within attacks successful 1980s System Monetary European crises repeated 1970s, early 1960s late system Woods Bretton collapse (1995). Rogoff Obstfeld emphasized was not or whether expectancy life After years. under stability years regime, simultaneously can economy no out points trinity impossible concept The profitable.11 highly otherwise would transactions prevent supervision regulatory heavily too rely unwise probably case any Moreover, regulations. such financing sector corporate control harder But banks. positions limit regulations prudential through damage potential reduce possible be should principle, In finances. government corporations, systems, banking on effects its damaging exceptionally it strike, does crisis when Then, hedge. need removes currencies foreign in borrowing risk perceptions reduces which change, never will arises gradually both have flows international open acountry by attempt an are they that is pegs soft of nonviability the for explanation major domesticgoals.The to dedicated policy amonetary mobility, capital rate, a and rate exchange goals domestic at policydirected short few belief monetary

combine seek whether third rate? maintenance solely credibly directed cant Why economy: one 1990s? only vulnerability their long, survive peg did correct, First, questions. three leaves insight this goals. these between arises conflict irreconcilable an later, sooner Correct? View Bipolar Is Regimes: Rate Exchange cause 1990s happened what raises 8.2 8.1 figures shown evidence capital. mobility limit controls using monetary protect macroeconomic difficult why question economy question, second answer crises. major arrangements soft important several collapse led apparent more trinity impossible expressed inconsistency force made markets, flows sector private development associated with combined accounts, capital growingopennessof countries,the market emerging Among pegs. hard towards shift accounts Union Monetary European creation 1990s, In 1970s. early Woods Bretton breakup earlier, much dated beginnings The direction. at system, open changing must peg, then overvalued, pegged If rate. official from away rate exchange nominal equilibrium move actions) (including shocks economic domestic foreign Both chosen. likely option costs, outweigh appear so doing benefits short-run when prevent wishes that a by hit been country react slow was large, become if But situation. stabilize time, in taken are actions policy requisite small, is disequilibrium extent as long As rates. raise has typically it selling currency, attack to expected can speculators thosecircumstances, Under aggregatedemand. system banking on inflict will they damage of because or reasons political for either viable be not may rates interest high required the shock, lasting longand fixed domestically-oriented bipolar time government devaluation strong

such large, disequilibrium If devalue. forced government anticipation Fischer Stanley I discussing appreciate.13 beginning rates when soand done had leave wanted is, overthat was turbulence after imposed were difficult Malaysian ofthe evaluation However, attention. more attracted 1998 September pegging Malaysias regional stability element important providing controls, long-standing assistance Asian through its maintained successfully China 8.2, table identified larger 16 Among flows?12 unwanted effects protect why Third, succeed. rate attack prevent cannot shows experience so, Even loopholes. cover extensive, quite be need they succeed, For inflows. between distinguish necessary costs.14 sectoroutweigh financial competition foreign allowing obtained including marketsimportantly integration benefits potential also economies. market emerging for goal appropriate suggests which accounts, open all economies advanced most fact part based view This markets. global into integrate and account liberalize want development course will assume once impose attempted countries Some rate. pegged maintenance with inconsistent fundamentally policies domestic if currency a from their withdraw able being about concerned are who investors since country, inflows effect an have to likely outflows capital on imposition addition, In 6871). 1999, Edwards, 1829; pp. 2000, al., et (Ariyoshi ineffective been has controls of use this that believed generally It underway. already is crisis exchange place. first the in there it sending not by respond may speculative shall devaluation country

experiences develops economy Correct? View Bipolar Is Regimes: Rate Exchange at gradually, would they effective, reasonably Where need point At effective. less distorting both become likely economies, contacts range results sometimes removal pressure. under not inflow, moving If desired. removed assurance greater light into bringing residents and/or foreigners either have often operation efficient put prudential Moreover, eased. gradually as flexibility begin desirable it rates, floating outflows regime crises, vulnerability economys generally, More institutions. taken positions limits instance, controlsfor effect impose example, controls: market-based use supported has IMF removed. are place be should system financial when occurs instance typical The help Atax costly. becomes typically this but impact, their sterilize try permit alternatively, appreciation; cause tend which capital, attract will high circumstances, such depreciation. currency expected foreign sum implied those higher rates needs country purposes, anti-inflationary For anchor. exchange an using inflation reduce trying is maintain experiencing without rate interest domestic a for were that suggests on with experience Chilean from Evidence inflows. influence principle can controls inflows, than more short-term taxing by addition, In capital. inflow to seemed eventually Chileancontrols However, investment. longer-term towards inflows capital of composition the shifting also and independence, policy monetary some allowing in successful growing result fixed similar strong tax substantial time

help time inflowscan outflows controlswhether question little There increased. uncertainties market volatility exacerbating thereby out, flows keep seeking while liberalized inflows. long-term prefer control seek Most technology. new form advantages bring crisis; Asian during even rising continued level aggregate indeed stable, quite investment investment. direct foreign sometimes flows, money) (hot short-term instance, for inflows, types specific at aimed These countries. some by used inflows Direct removed. recently 2000), (Edwards, Fischer Stanley sustain from away move advised well be would circumstances these Countries markets. capital global into further integrate want they develop, Moreover, time. over effectiveness lose tend controls Nonetheless, towards typically peg defend undertaken interventions long As behavior. its policy intervention interest deploy rather freely, float do claim Many Floating Fear regime. flexible categorized chapter this rates, range narrow or rate, hardly is It rates their allow willing marketcountries emerging particularly many demonstrating as described been has floating fear such But float. a rate. inflation affect to likely rate Changes rates. exchange real nominal behavior with concerned are countries in policymakers most that political also but economic only not have may which resources, allocation and citizens, domestic of wealth the on effect country soft more particular managed surprise powerful

examples few one States United extent some likely regimes, those even countries, Thus matter. exporters where appreciations, currency case effectsespecially Correct? View Bipolar Is Regimes: Rate Exchange recently until example, Canada, attention pay do economies market emerging theUnitedKingdom) Italy,Japan,and Germany, France, (Canada, countries G-7 other most But conduct its ignores largely produce generally This behavior. exchangerateaffectsprice becausethe setting indirectly into betaken will approach With it. commend much has well working seems targeting, for opted have converted) forcibly whom (several rates floating converts recent Many interest on based was policy, guide index conditions depreciates, when tightening force particular face may banks Central rate? inflation both target Why directly. targeted being were undertaken would which magnitude, same necessarily but similar, a whether about unresolved there However, policy. fiscal it investment, savings domestic between imbalance redressing by balance care take macroeconomic part any if not affects fundamentally must answer first The deficit. large account current appreciated with and output movements respond framework targeting inflationan how of that similar is issue this respects, many In run. influence can policy monetary then rate, than faster moves nominal If rate. exchange real affect to run short the in used be should system rate country pattern response situation

certainly almost unemployment. Fischer Stanley curve been have answers just issue, pursue attention.15 empirical much received although curve, Phillips analogous defend trying perceived they So stabilize try markets foreign time from directly intervene interest Beyond rate. affect will inflation greater run long inflation, real between tradeoff deal how question answer remains negligible, effects long-run recognizing while unemployment output actions its impact short-run account into take developed has Mexico de Banco The it. use wise does, even alland works whether over controversy course There common. yet are rules policy systematic where market, feel touch on emphasis considerable place bankers areas remaining one This markets. volatility degree reducing useful can interventions defending country market emerging difficulty Recognizing area. this lessons provide which in movements day-to-day reduce designed intervention automatic more-or-less is, (that basket arrangements: theseBBC Hecalls regimes. alternative proposes (2000) Williamson John than rather currencies circumstances, these In intervene. going bank central when certainty with predict cannot speculators so outside temporarily move allow necessary countries recommends also He crawl. band, currency), serving elastic and such why clear all at rate, for anchor nominal a as thought could band rate Possibly framework. preferable author the rates, exchange of range some weakly committing by plausibleis very not is possibilitywhich One any. if brings, that benefits what demonstrated be need would it but framework, inflation-targeting an to particular method narrow peg single moving weak system supplement

euro, currency, single exception But small. tender 37 all Europe, 11countries Except board. acurrency tender, legal independent no systems, peg had then-182 45 Pegs Hard Viable equilibrium. too moves real if play into brought be will policy fiscal likely it make ities Correct? View Bipolar Is Regimes: Rate Exchange over dollarized, Salvador El Ecuador 1999, Since boards. biggest SAR Argentina one. big plans 1990, end At similar. terms proportion pegs; hard very members 183 IMFs regarded once boards, appraisal economies. three only exist, not European changed, undoubtedly has curiosity, performance record; their examination 1994); Schuler, instance, (for others Hanke Steve by proselytizing tireless factors: several provide 270) p. (2000, Wolf Gulde, Ghosh, Bosnia-Herzegovina. Bulgaria, Lithuania, Estonia, economies transition Argentina, SAR, Kong Hong including economies, sterling record track historical First, summary: exit did uneventful. usually were such reasons, economic than rather political, for mainly so following credibility gain instituted often modern pegs. simple regimes floating both to compared volatile) more (if higher inflation lower experienced boards with Countries successful. remarkably been have regard this hyper-inflation, high reflect simply may but significant, effect growth GDP Third, levels. depressed introduction successful .. trivial far from exits possible regarding untested, yet issues, thorny are there Moreover, . as removal virtual arrangement, board currency strength great a adjust can economy shock, macroeconomic external internal an case the In weakness. principal its also adjustment, of wages via that and quicker, much typically is adjustment rate nominal The wages. pricesand domestic or rates exchange in either quarter result number balanced period rebound [is] means change Second,

case certainly and, prolonged Fischer Stanley where evident was difficulty 2000, late In difficult. rate, real make difficult It costs. foreign relative decline prices domestic place taking moving, nominal prevents commitment by imposed constraints benefits evaluation board. disorder, extreme credibility obtaining way. other possible appears than cost at rapidly more monetary Argentina, like without doing costs occasional accept willing society history, inflationary unhappy A compensation. capital, mobilityof with adjust would deprived when countries, member how emphasized currency single leadingup discussion extensive The since. ever inflation attitudes colored 1920s hyperinflation German memory just inflation, lower mobility geographical exaggerate should we bebut will Union European internationally mobile likely its nor abroad, from measures compensatory access have unlikely country such For economies. national large even shocks adjustment short-run play policy Domestic mobility. market labor asinternal well flexibility on be has emphasis role during easing times enough strong situation provided sustainability ensure help can possible, entirely timesare normal prudence flexibility, price and wage mobility, factor internal encourage endto this Policies sustainability. fiscal long-term about questions raise to as available not rate exchange if greater them need but economy, any in desirable generally course are policies Such time. over a for cited sometimes disadvantage Another adjustment. of may it money, create cannot bank central the since that is arrangement board general history low-inflation long means country, countercyclical recession tool

crises often Most rare. currencyis into panic-based pure resorta classic envisaged circumstance However, resort. act able not Correct? View Bipolar Is Regimes: Rate Exchange absence authority. come these another, way One shown. (1995) Schoenmaker Goodhart resolve, resources real take basis, resources, fiscal typically creation, ways: various compensated can last lender acting capable bank setting Bulgaria); been (as fund stabilization creates currencies, own their abroad borrow cannot economies emerging example, For flexibility. asidefrom benefitseigniorage no essentially obtains acountry respect with Their markets. asset flows international focus tend (2000), Hausmann Eichengreen (2001) Reinhart Calvo such pegs, hard favor strongly who Those rates. fixed or floating world adjust account current market factor goods how centered implicitly has far so discussion system. banking credits contingency lining economy; operate allowing controls; prudential supervision sector treasury; resort final necessary banks financed scheme, insurance If unions. wider run longer perhaps boards currency beyond going argue they this, Given borrowing. all higher risk additional as use never intends relative Hence counterproductive. clearly is flexibility retaining then adjustment, up giving extremis rate exchange changing option both forgoing implied losses versus system, financial strengthening by rates interest foreign and domestic between spreads reduction example for markets, capital obtained that dollarization from gains appraisal an on turn must board a if tilted argument balance The currency. some dollar, case least at suggesting that, done have would Congress previous in bill Mack the countries; dollarizing to seigniorage transferring of found be could means acceptable central deposit source country mechanism national politically

success, prerequisites were many implemented It succeed. dollarization takes what about food much provides case Ecuadorian consideration. based Salvadors 2001); (Fischer, desperation one essentially was decision circumstances. different very under but dollarized Salvador El Ecuador Both feasible. politically eventually could dollar use seigniorage transferring Fischer Stanley ago. years some thought had than attractive more become systems peg Hard well. reasonably worked year, first least at dollarization. Ecuadors success long-term ensure sector, done, remains work Much place. being system, banking on transactions account capital trade its dependent heavily clearly there But dollar. floating role shock-absorber benefitting country their regard policymakers U.S. connected closely Canadian though even example, For economy. affecting shocks nature given needs consideration careful sure, To case. any economy good those meeting soundness, fiscal system financial strength terms demanding,in asystem operation effective requirements While seigniorage. transfer made provision particularly country, that currency adopt sense make may it economy, large Rate Exchange future. should reductions further existence, currencies number reducing already is trend This regimes. pegged hard direction succeeds, zone euro if accelerate expected be can rate exchange using of risks benefits The Disinflation for Anchor (for studied extensively been have stabilizations, such with associated dynamics real the well as inflation, disinflate to anchor a which in instances few are There 1999). Vegh, and Calvo 47; 44 pp. III, Appendix 2000, al., et Mussa see without place taken has inflation triple-digit from disinflation strong small particular trend, Nominal nominal summary, successful

form takes sometimes such anchor instability. monetary chronic suffered particularly anchor, use Correct? View Bipolar Is Regimes: Rate Exchange hard but board, often peg, devaluations undertook either sample) added could 1985 Israel (and seven other successfully. disinflated boards entered 1997 Bulgaria Lithuania 1992, Estonia 1991, themArgentina four (2000), al. Mussa studied 1980s late since stabilizations rate-based major eleven Of regime. at 1999ended Brazil 1998, Russia 1994, Mexico countries three disinflations time. over have many bands, introduced moving economy However, mounted. appreciation widened where Israel, Poland instance pattern This 1998). al., et (Eichengreen expand inflows capital credibility gains happen likely quite something undertaken best showed strategies study An arrangement. pegged their consider must strategy asoft using disinflate Countries crisis. following regained rapidly preserved inflation low case each though crash, or devaluation argue they weak, it peg; off reason no see generally authorities strong, currency When case. this even complicated, from away move need The flexibility. rate greater for unsuccessfully pushing been had IMF crashed, countries disinflating currencies which cases some In grow. pegs soft with associated dangers more continues, longer But counterproductive. be would pressure under band a as Nonetheless, 1999. December began that program reform stabilization Turkish into built mechanism exit an reasons one is rate. exchange its float forced was Turkey 2001, February in hold failed peg crawling difficulties, political and widened, account current when actions fiscal corrective undertake to failure the problems, sector banking unresolved of very softer step time, widening result

currencies instability remarkable The Rates Exchange Three Big Fischer Stanley strengthening 1995, began dollar appreciation affected adversely Asian east exports Thus currencies. one peg those particularly countries, other create Japancan Europe, States, United threethe Movements discussion. concern topic support political commitment. maintenance dedicated area eachcurrency narrow, If yen. dollar, proposalsfor frequent been have There 2000. Turkey Argentina by faced difficulties commitment; desired maintain clear not is it zones; narrow maintaining gains case akin something practice, In stabilizing. could zones wide even currencies, major among extent given But large. be implying 80, reached yen-dollar mid-1995 happened markets. currency agree countries or two fundamentals, with line out far get When loosely. informally operate, appears from differs value.16 estimated depreciated euro when 2000, fall value, equilibrium its estimates relative appreciated significantly was that future about certainty also course but speculators, bets one-way possibility removes This rates. of level particular any at intervene to commitment so zones, preannounced no are there First, ways. important three a such if provide would zone target probably and inflation, for implications their both three, big rates interest influence may movements rate While actions. policy monetary than market exchange foreign in interventions coordinated through more operates system informal the Second, possible. were perennial factor persuasive yen formal credible

pattern end at regime their by these groups Table respectively. end-1991, end-1999 as IMF othermembers amongthe arrangements distribution shows flows. capital international trade, GDP, whichaccountforthebulkofglobal economies, market emerging developed 55 far so focused Ihave Countries Other for Regimes equilibrium. from diverge likely Europe States, United among extent bounds some provides it Nonetheless loose. informal indeed system that say which rare. are interventions such Third, agenda. current be appear not do rates affecting purpose sole with changes interest coordinated Bank, Central European Japan Bank cases directly parentheses. in is countries of number The Note: IMF. Source: 1999. 1991 regimes, countries: other All 8.3 Figure Correct? View Bipolar Is Regimes: Rate Exchange been has There one: a and side one pegs hard towards other. the on regimes rate exchange flexible more to shift familiar mild stronger

2000. Report Annual IMF, Source: Zambia Yemen, Uganda, Tanzania, Sudan, Somalia, Leone, Sierra SaoTomeandPrncipe, Rwanda, New Papua Mozambique, Mongolia, Moldova, Mauritius, Madagascar, Liberia, Kazakhstan, Haiti, Guyana, Ghana, Georgia, Gambia, Eritrea, Rep.), (Dem. Armenia, Angola, Albania, Afghanistan, (29) Independent Uzbekistan Ukraine, Tajikistan, Suriname, Slovenia, Slovak Romania, Paraguay, Mauritania, Malawi, PDR, Lao Kyrgyz Kenya, Jamaica, Guatemala, Ethiopia, Dominican Croatia, Cambodia, Burundi, Belarus, Azerbaijan, Algeria, (23) float Managed (2) bands Uruguay Honduras, crawling within Rates Tunisia Nicaragua, Rica, Costa Bolivia, peg Crawling (4) band Vietnam Libya, Iceland, Cyprus, horizontal in Pegged Zimbabwe Vanuatu, Emirates, United Turkmenistan, Tobago, Trinidad Tonga, Republic, Arab Syrian Swaziland, Solomon Seychelles, Arabia, Saudi Samoa, Oman, Antilles, Netherlands Nepal, Namibia, Myanmar, Malta, Maldives, FYR, Macedonia Lesotho, Lebanon, Latvia, Kuwait, Iraq, Iran, Fiji, Salvador, El Comoros, Verde, Cape Botswana, Bhutan, Belize, Barbados, Bangladesh, Bahrain, Bahamas, Aruba, (38) pegs fixed Other Togo Grenadines, the Vincent Lucia, Nevis, Kitts St. Senegal, Marino, San Palau, Niger, Micronesia, Islands, Marshall Mali, Luxembourg, Lithuania, Kiribati, Guinea-Bissau, Grenada, Gabon, Estonia, Guinea, Equatorial Dominica, Djibouti, dIvoire, Cote ), (Rep. Congo Chad, Rep., African Central Cameroon, Faso, Burkina Darussalam, Brunei (31) board Currency Herzegovina, Bosnia Benin, Barbuda, and Antigua tender/ legal separate No Countries countries) (Number regime Exchange 1999) 31, December of (as arrangements rate exchange by grouped countries other All 8.3 Table Fischer Stanley

display Such economy. world well very small also Many incomes. capita per low have typically they means market, classified 8.3 figure represented These Correct? View Bipolar Is Regimes: Rate Exchange group. best work would what recommendations definite any make makes which experiences, situations countries, such single no situations, aspects other development economic levels differences wide Reflecting state: 31) p. (2000, al. et Mussa economies, these arrangements leaves however, conclusion, Even market emerging than them appropriate more float managed highly band or peg form some modern involvement limited their Because time.17 change may regimesfor possible been has there decade, last In Conclusions Summary account. its up want it develops, country as likelihood account taking system, global into integrated yet types particular suited most structural sector financial accompanying systems characteristics research further room There choice. support needed policies on advises regime choice members respects generally IMF Agreement, Articles Consistent diversity. ambiguity reflects ... members to advice IMF add: They transition developing range a regimes rate exchange distribution middle out A all but markets, international in active economies only true This pegs. expense at gaining floating hard both of share the direction, periods. long over viable not and crisis-prone are pegs soft that is accounts, capital open with countries among change, for reason main The countries. emergingmarket amongthe certainly continue, will trend this suggests ahead review diverse hollowing bipolar look

between Acountrys Fischer choice The history. inflationary economy, characteristics part depends sense makes and/or instability, history another transactions account current capital its both integrated closely economies. form which subset obvious no stability, tradition union, version edited an is paper This Notes ends from move could trend operate, economies dollarized area euro well how depending longer over However, spectrum. end peg than floating towards likely shift out, hollows distribution center years, recent as term, medium In nominal affect seek sometimes react interventionwill market occasionally policyand monetary countries, biggest but all floating, mostly currencies remaining among currencies. national independent fewer future therewillin currencyunions, dollarization including another, or sort one hard very adopt countries more As rate. afloating with off better may experiences, it shocks macroeconomic sorts adjust economy helps delivered 2001. 6, January on Louisiana, Orleans, New Associations Science Social Allied meetings Association Economic American Economists Government Society session I editing. excellent his Taylor Timothy thank like a (or value fixed currently that rates pegs soft below: moreprecisely defined be will regimes Exchange 1. Fund. Monetary International necessarily not author, are expressed Views comments. Wolf Holger Williamson, John Waldman, Michael Minassian, TerTeresa Szapary, Gyorgy Sturzenegger, Federico Rodrik, Dani Polak, Jacques McKenzie, Sandy Mauro, Paolo Masson, Paul Levy-Yeyati, Eduardo Lee, Jaewoo Kuijs, Louis Khan, Mohsin Ito, Taka Goldsbrough, David Long, De Brad Claessens, Stijn Citrin, Dan Chote, Robert Blanchard, Olivier Black, Stanley too, Thanks, classifications. those regarding information further many regimes, rate exchange classifying work Otker Inci Malikyar, Nadia Johnson, Barry Ishii, Shogo assistance, their Juhn Grace and Sahay Ratna particularly paper, this preparation in and, issues, these discussion continuing for IMF the at colleagues my grateful other some to values) of range hardpeg long country group historical belief flexible lecture joint would am narrow

whether instance, cases; marginal difficult may Classification 3. 2000. corresponding years earlier data developing currently variability. reserve aspects categorization, Yeyati Levyinaccurate patently EAER own authorities difficulty wrestled have Sturzenegger Levy-Yeyati (1997) Ghosh including authors, is. say what than rather place, evaluation s 2000,is Report Annual taken paper, publication. (EAER) Restrictions Arrangements presented countries, self-descriptions based was regimes categorization IMFs recently Until 2. pegs. typically regimewere Woods theBretton exchangerates adjustable pressure. significant under comes change likely value peg, defend authorities commitment some currencies, basket currency Correct? View Bipolar Is Regimes: Rate Exchange classified band broad I reasons expositional but correct, course perspectiveis This framework. consistency choosing issue key separate, regarded should policy monetary emphasized paper this draft commented who colleagues Several 6. (2000). Velasco Summers (1999), Frankel Edwards Reinhart Calvo (2000), al. et Mussa systems, analyses 5. countries. member place actually arrangements facto de judgment their using is, 1999that those basis same IMF, staff were 8.1 figure used 1991 classifications 4. float. amanaged or peg hhttp://www.msci.comi.For International, Capital Stanley Morgan indexes information further For 7. policy. macroeconomic overall with inconsistent if sustained be can no granted taking regime, choice on narrowly more a document Sahay Fischer 9. 2002. half first through country each within tender legal as continue to scheduled countries area euro currencies national Technically, 8. author. by provided source, original not which POC, regime rate exchange description The 8.1. table listed these Iceland Except POC. Taiwan Luxembourg, Korea, Israel, Iceland, Greece, Economies: Advanced listing included are six excludes market developed list MSCI www.jpmorgan.com/MarketDataInd/EMBI/embi.htmli.The hhttp:// see markets, emerging instruments debt external traded returns total tracks EMBI.,which discussion Treasury. U.S. and IMF pressure of because is it that suggesting pegs, soft from away movement for argument alternate an offers (2000) Williamson John 10. 1990s. in economies transition the among time over pattern similar focus general very

I 11. Stanley Rodrik Kaplan 13. Ariyoshi controls, experience detailed more (2000). Williamson al. et Mussa (2000), examined question This 12. capital use potential discussing below related a come These Faruqee Isard rates, estimating methodology IMFs For 16. (1995). Vegh See case. Canadian calculated tradeoff implied which autoregressions vector contain (1997) Zha Cushman 15. Bhagwati Jagdish including disputed, much been has (1998). Fischer length greater at developed argument The 14. controls. Malaysian appraisal positive O Inci Laurens, Bernard Habermeier, Karl Akira, Ariyoshi, References (1999). Frankel reached conclusion is that note authors point this At 17. sources. different by provided estimates range methodologies discussion (2000) Edwards see rates; estimate also institutions financial sector private Several identified. clearly be can rates exchange equilibrium estimated actual between discrepancies time from but interval, confidence n Iva Jorge 7175. 90:2, Proceedings.May, Papers Review, Economic American Countries. for Policy Rate Exchange Velasco. Andres Roberto, Chang, 6925. Countries, Developing Crises BOP Stabilization Inflation 1999. 97133. pp. Economics,47, Development Journal Evidence. Theory Rate: Real Targeting 1995. Vegh. Carlos Reinhart, Dollarization, on Reflections November. 7993, Paper Working NBER Floating, Fear Reinhart. M. Carmen A., April. Maryland, University America, Latin Debate Dollarization to Reference Special Rate, Exchange the Markets Capital A. Guillermo Calvo, Press. HooverInstitution Unions.Stanford: Currency eds. Barro, Robert Alesina Alberto in Floats, vs. Pegs Shocks: Trade of Terms Coping 2001. Christian. Broda, 712. 77:3, Affairs.May/June, Foreign Myth. The 1998. Jagdish. Bhagwati, Paper190. Occasional Liberalization,IMF Use Their with Experiences Country Controls: Capital 2000. Kirilenko. Andrei and return closely relatively wide Canales-Kriljenko, tker-Robe,

Identifying Zha. Tao O., David Cushman, Correct? View Bipolar Regimes: O Inci Jadresic, Esteban Haman, Javier Johnston, Barry Bredenkamp, Hugh Masson, Paul November. 7418, Fragility, Financial Rates Hausmann. Ricardo Barry, Eichengreen, NBER, Prevention, Crisis Flows Regimes, Exchange Perspectives.Fall,13:4,pp.6584. Controls? Are Effective How Sebastian. Edwards, 433448. Economics.39, Journal Flexible under Economy open a Than More Boards: January. 5874, NBER Matter? Nominal Does 1997. Wolf. C. Holger Ostry, D. Jonathan Gulde, Anne-Marie R., Atish Ghosh, 215. August, University,International Times.Princeton at or All Right Is Regime Single No A. Jeffrey Frankel, February. D.C., Washington, Fund, WP/00/30, Paper, Years, Ten after Economies Transition The Sahay. Ratna Stanley, Institution Unions.Stanford:Hoover Barro, Robert Alesina Alberto Ecuador 2001. 110. pp. 207, May, Finance, Essays Section, Finance Convertibility?PrincetonUniversity, Capital-Account Pursue IMF Should in IMF, Role Liberalization Capital-Account Stanley. Fischer, 168. Flexibility,IMF Greater Seeking Countries Options Strategies: Exit April. University, Princeton Rates. Fixed Institutionalization Domains, Areas, Currency Peter. Kenen, December. Government, School Kennedy Work? Controls Capital Malaysian Did Rodrik. Dani Ethan, Kaplan, 167. Occasional Approach,IMF Balance Macroeconomic Extensions Assessment: 1998. eds. Faruqee, Hamid Peter, Isard, 2101. S. Session, 2nd Congress, 106th 2000. Act Stability 400. Paper Working Bank, Development Inter-American Regime. Rate Exchange Choice Turmoil Financial 1999. Stein. Ernesto Pages-Serra, Carmen Gavin, Michael Ricardo, Hausmann, Press. ICS Francisco: San Growth. Center International Countries. Developing for Boards Currency 1994. Schuler. Kurt H., Steve Hanke, Papers.47,pp.539560. Oxford Separated? Be Supervisor Bank Policy Monetary of Functions the Should 1995. Schoenmaker. Dirk and Charles, Goodhart, 31,pp.270335. Policy.October, Economic Fix? Small Quick tker.

September. Economics, International Option.Washington,D.C.:Institute Intermediate Reviving John. Williamson, 46, Working Cairo, Studies, for Center Egyptian Future, the Toward Floating Markets: Emerging Rates Andres. Velasco, 116. pp. 90:2, Proceedings.May, Papers Review, American Cures. Prevention, Causes, Crises: Financial International H. Lawrence Summers, Perspectives.Fall,9:4,pp.7396. Journal Rates. Fixed of Mirage The 1995. Rogoff. Kenneth Maurice, Obstfeld, 193. Paper Occasional Economy,IMF World Integrated Increasingly an in Exchange Berg. Andrew Mauro, Paolo Jadresic, Esteban Swoboda, Alexander Masson, Paul Michael, Mussa, November. Conference, Research Annual First IMF at presented paper Performance, Economic Regimes Rate Exchange 2000. Sturzenegger. Federico and Eduardo, Levy-Yeyati, Fischer Stanley

defined 1946.1,2 1920 between place took hyperinflations eight studied (1956) Phillip work, classic his In 1Introduction Vegh A. Carlos Sahay, Ratna Fischer, Stanley Inflations High Hyper-and Modern below drops rate monthly before ending month) (per exceeds month beginning specify not he Although as qualify episode inflationary an for time span largely Hyperinflations months. ten lasted seven Cagan none 2 averaged World New discovery from resulting Spanish andthe annum, than less Death Black standards: present by modest pre-twentieth-century famous many indicates 9.1) (table evidence imperfect, highly must data While phenomenon. definition Cagans meets that recorded first levels. per-annum reach occasion on did money, paper wars associated 9.1, table summarized inflations recent more coin).4 larger solidus gold terms low very was but smallercoin) getting smalland (a denarius prices measured levels triple-digit reached have years some may Diocletian,3 following century, fourth empire Roman Inflation annum. per 15 never probably a are thathyperinflations view supports Revolution French with link The Velde1995). Francois Sargent Thomas and 1991; Capie Forest (see percent 50 exceeded 17951796 in months five least at were there which during France, revolutionary of inflation assignat the be to appears year. minimum hyperinflation, hyperinflation modern

151 Rome/Diocletian Ancient Source(s) ation1 Duration Episode ofannualCountry/ ofCumulativerate Dates GeometricannualMax. high episodes Historical 9.1 Table n. 3.6 19,900.0 150 1191 Dynasty Sung China/ 1349 Death2 Europe/Black (1983) Lui 18.0 6.4 2,092.6 50 3 56.3 33.6 138.5 1502 Spain 14.6 1.4 315.2 99 1717 Law6 John France/ Hamilton 1,431.3 11.9 55.2 1720 1777 Revolution3,6 American Paarlberg 1780 Jan. (1913), Fisher 16,098.7 203.7 2,701.7 1790 Revolution4,6 French Capie 92,067.6 150.5 26,566.7 1862 S. War/NorthU. Civil 1796 ( years116.929.445.1Paarlberg 1861 1913 Feb. Revolution5,6 Mexican 1865 Apr. (1955) Lerner 5,605.7 189.2 9,019.8 (1989) Manns 1916 andDec. Cardenas 7,716,100.0 230.6 10,715.4 months 1938 China (1940) , Dollar) Spanish units (in currency continental the Depreciation 2. England. wheat Price 1. terms. percentage in expressed Infl (1948) Huang 612.5 176.6 2,617,681.0 years 10 Vegh Carlos Sahay, Ratna Fischer, Stanley 256 6. rate. ation infl monthly maximum annualized based inflation annual Maximum 5. dollar. U.S. per Pesos 4. assignat. Value 3. leather. sole and wool, corn, Indian beef, of prices on P D 1 C 5 4 K a. 1240 1351 1600 36 73 18643 1947 01 965) aarlberg 936) ec. 991) 993) onfederacy6 1 7 emmerer

hyperinflations, recent out stands case Serbian months.5 two than less lasted episodes excluding but Cagan, defined 19561996, during shows 9.2 Table Union. Soviet former countries particularly economies, transition decade past definition, same By seven. among worst Nicaraguan economieswith market countries) six (in least at been 1984, hyperinflations. no 1984 1947 Between states. new establishment empires, end revolutions, wars, deficits fiscal large finance paper print need related phenomenon Inflations High Hyper-and Modern 2 War post-World seven all those exceeds rate monthly accorded latter payments.7 balance or 1930) Graham Frank 1937, Bresciani-Turroni Constantino example expansion driven question on centered over controversies Interwar hyperinflation.6 within economists. most press, much industrialists, bankers, Reichsbank, German throughout held view this Bresciani-Turroni, According rate. exchange behavior exogenous inflationary advanced has hyperinflations analysis formal 1956, Since responsible. instead was growth monetary underlying expectationsthat adaptive concludingassuming hyperinflation, might itself formation process whether asking role including framework train its brought which each directions, a led also introduction The 1990).9 Fischer Stanley Bruno (Michael Cagan assumed function by implied as curve, Laffer subject tax inflation instance, possible, is outcome an Such not. others hyperinflationary them some equilibria, multiple were there if except sustain, difficult more became hyperinflation caused have could alone that notion expectations, theory development with First, literature.8 1973). Wallace Neil Sargent Thomas example, (for expectations rational constraint under inflations hyperin functions money estimate attempts to therefore and money, for demand the of treatment econometric sophisticated peak Hungarian major number

1956 ations, Hyperinfl 9.2 Table Angola3 Highest Median average inflation months) (in episode ofDurationCumulativeGeometricGeometricCountries Dates after During hyperinfl monthsDuring Twelve rate ation infl Monthly 1,2 nition) defi (Cagan May Argentina 1996 38.1 5.3 9.5 84.1 36.0 40.3 62,445.9 1984 Apr. Bolivia 27.0 11.2 12.0 196.6 61.6 58.0 15,167.0 1989 Brazil 1985 33.0 2.7 5.7 182.8 51.8 46.6 97,282.4 1986 Jun. Nicaragua 1990 21.5 14.4 14.8 80.8 70.2 67.8 1991 Mar. 20.3 0.8 1.8 261.2 31.4 37.8 11,895,866,143 Oct. Armenia 26.2 12.8 12.9 250.0 65.0 81.3 69,502.4 11 1993 Nov. Congo, Rep. Dem. 40.9 12.6 15.9 114.2 35.2 43.8 7,689.2 1992 Azerbaijan 7.8 2.0 2.4 437.8 44.5 47.6 34,158.2 1993 Georgia Dec. 27.8 3.3 5.2 64.4 23.1 27.3 41,742.1 Vegh Carlos and Sahay, Ratna Fischer, Stanley 258 1994 Sep. 13.0 0.9 0.4 211.2 66.3 66.6 76,218.7 4 5 1 2 692.7 13 9 1 8 2 5

Aug. Tajikistan 6.6 3.3 0.1 176.9 36.4 49.5 3 1995 Turkmenistan 1995 Dec. 19.6 2.1 2.9 78.1 63.0 56.5 1991 Apr. Ukraine 1996 9.7 11.2 62.5 55.7 57.6 1993 Feb. Serbia Nov. 28.4 7.7 10.9 285.3 14.9 25.0 1,864,714.5 ! 1.0 175,092.8 54.2 228.2 156,312,790.0 ation hyperinfl fines de1. Cagan estimates. staff IMF authorities, national Statistics; Financial International IMF, Sources: 1994 12.4 least stays amount that drops monthlyrise before ending percent 50 exceeds rise beginning out rule not does The a at prices in gure. thatfi rates have months of many intervening for per 50percent below Chile market In episodes. month two2. onefollowing the 1988, (Sep. Peru 1973) 1990) Estonia economies, transition Republic Moldova . Belarus excluded also we addition, ( , Uzbekistan Jan. and 1991, (April jumps price to appearrelated they as months, two than more lasted episodes these nition defi Cagans by though even 1992) July from is hyperinflation after Period 1992). Inflations High Hyper-and Modern 3. 1996. 9 5 4 0 E O A F 3,635.7 839.2 291.4 12 year. rate Inthe Latvia Lithuania Krygyz Kazakstan Russia 4 .2 as xcludes ct. pril nd eb.

consideration Second, Vegh Carlos Sahay, Ratna Fischer, Stanley 260 implied (1956), Bailey Martin formalized generate money-driven initially revenues), government value collection, tax due (whereby, effect Keynes-Tanzi presence complication with hyperinflations cause root factors monetary emphasis Third, process.10 feedback unstable deficit fiscal emphasizing hyperinflations, ending studied (1982) Sargent article, bring changes, institutional legal embedded preferably change from move would controls, price temporary instance involving policies, heterodox scope be could there meant lags normal reduces higher notion lines, similar Along zero essentially end a content analytic providing thus 1990), Tabellini Guido Persson (Torsten credibility analyze possible it made approach game-theoretic development approach, Sargents related closely Fourth, cost. output low at rapidly very equilibrium may wisdomdisinflation conventional thatcontrary possibility forefront brought chronic-inflation programs inflation-stabilization real on evidence Increasing half-century. last suffered have countries most confronts which form describes better or moderate occur, they when are hyperinflations as Devastating contracts. wage indexed, often overlapping, causedby policies disinflationary for difficulties particular, with. deal difficult and deep-seated more make effects against protect created mechanisms Institutional digits.11 triple occasionally rising annum)inflation, (per double-digit process ongoing an rather but stability, followed hyperinflation outbursts occasional one much so not was America, Latin especially countries, many in problem inflationary that emphasized (1972). Pazos Felipe inflation chronic concept important introduction seen also has 1956 since period hyperinflation, of understanding deepening the to addition In makers. policy bankersandother central by invoked frequently tax, growing famous credible high low-inflation

1999, Vegh, Calvo Guillermo (see effects supply-side goods, durable purchases credibility, lack inertia, role emphasize facts, stylized puzzling these explain developed models types Several anchor. nominal rate exchange use related be Interestingly, programs. later occur appears disinflation associated typically recession The (1992). Vegh Carlos (1992) Liviatan Nissan Kiguel Miguel argued consumptionas GDP activityparticularly expansion initial an lead Inflations High Hyper-and Modern factors monetary relations permit grounds separately treating justified 25) p. (1956, Cagan review). . studied them with live willing been has country no virtually practice disruptive sufficiently range First, reasons. main four for below). provided exact (an annum per excess defined rare relatively still examine rare quite which defined strictly hyperinflations ourselves confine but episodes, approach Cagans follow chapter, In economy. sector real from isolation amounts almost what percent treat tended literature hyperinflation digit triple refers often usagewhich popular both Second, years. 2 characterizing start We conditions. normal do they inflations clearly more out stand relationships economic simple certain out, turns as Fourth, hyperinflations. than rather experienced that countries sample larger offered freedom degrees statistical extra have useful is it inflation, extreme studying Third, inflations. andextraordinary between line a 2), section stated (formally definition our inflation.In very concentrate chapter remainder For rates. high at are dynamics whether particular, assess, to matrices transition using then and inflationary frequency listing by first ranges, different of behavior dynamic countries. 25 in episodes such 45 identify we definition, formal this on Based percent. 100 above rises rates inflation twelve-month the when place takes episode high-inflation critical few distinguishing very

5 Section disinflation. effects real (ii) low-inflation compared periods highduring variables macroeconomic behavior (i) focus gears shift 4, inertia. concept well rates, exchange money, relations causal also We other. seigniorage, deficits, fiscal among hand one growth money between relationship such analysis basic are mechanisms several examine proceed 3, section Vegh Carlos Sahay, Ratna Fischer, Stanley 262 98 43.9 11 400 106 15 47.2 13 17 200 208 40.0 45 216 43.4 49 87 50 313 12 41.0 92 212 25 Maximum Minimum Average countries episodes3 inflation2 months) (in Duration Number annualized Range data) (monthly 196019961 inflation, level Frequency economies: Market 9.3A excountry this definition, our under Then, 1970. June say, in, only percent 100 whose acountry imagine threshold, 100-percent example, For months.12 twelve least at there stays below falls before last period, month first be to start take we case, that In range. bound lower above rises twelve-month when place taking as defined is episode An subsample). available longest available, not were if (or, 19601996 period rate inflation ranges specified episodes inflationary frequency on economies market 133 for data presents 9.3a Table Dynamics and Episodes Inflationary 2.1 Inflation High of 2Characteristics inflation. high very with associated facts stylized key ten identifying process, in and, results the summarizing by concludes

perienced Inflations High Hyper-and Modern Although months. twelve minimum definition, under that, Notice 1970. June 1969 July a form economies, market properties statistical information 9.3a) (to related present we 9.4, In rates. annual single-digit even double-or low into now annum,16 above generally was monthly freed,15 prices since period group this For liberalization. response jumped level price overhangs, monetary large light when, process start were inflations extreme Most annum. 28) out (19 them indeed percent; All 9.3b. presented are economies transition 28 on Data experience. repeated 400 (Argentina) country Only rises. declines maximum longwhile surprisingly years, four three similarand, remarkably episodes duration average The 400-percent one eleven 100 while annum, excess from suffered turn those (49) half Over inflation. per-annum 25-percent more episode an experienced sample countries (92) thirds twoover However, annum.14 than less experience time, countries, most that us tells 9.3a Table countries. many moderate not would annum per 25 although rates very least at constituting categories remaining 100 50 high range), percent 2550 (for high moderate regarded be can table ranges perspective, international Seen convention.13 agreed no yet as is there 1993), Fischer Dornbusch Rudiger hyper( and extreme, high, moderate, instance for episodes, inflationary categorize to used been have adjectives of T year in rate by Categorized matrix. inflation which with frequencies the show matrices these 100-percent variety (rows),

freed were prices which (28 transition while availability, determined was total) (133 economies market period starting The economists. desk IMF authorities, Statistics,national Sources: 39.7 19 20 13 22 24 12 45.9 23 103 14 53.0 104 16 56.5 28 30 above 25 Maximum Minimum Average countries episodes3 inflation2 months) (in Duration annualized data) (monthly 198719961 inflation, level by episodes Frequency 9.3B Vegh Carlos and Sahay, Ratna Fischer, Stanley 264 25% 2. scale. 50% 100% 200% . annum 400% month; matrix1 Transition economies: Market 9.4 Table episode. inflationary an definition for text See 3. month. per Year fall rise 400 200 100 50 <25 inflation Number Will 200 100 50 25 Range T number Calculated 1. Statistics. Financial International IMF, Source: 3857 Total 37 32.4 67.6 13.5 8.1 2.7 >400 17 35.3 47.1 17.6 11.8 5.9 11.7 200400 59 40.6 17.0 1.7 15.3 42.4 18.6 11.9 10.1 100200 122 33.6 18.9 2.5 1.6 14.8 47.5 23.0 10.6 50100 279 15.1 1.4 13.3 38.4 46.5 2550 3343 4.6 0.0 0.1 0.4 4.1 95.4 a as column countries. 133 from 19601996, data annual cross-section pooled, on Based 100.) to up add (Rows T. year range row corresponding the in observations numbers of large 1.9% 3.4% 5.9% 9.6% 14.4% percentage 1 1in Probability

. .T subsequent Hyper-and Modern T if instance, For ranges.17 different rise fall. rise Probability labeled columns consider Second, percent.18 50 current its stay bound), upper no has which last (excluding ranges all for contrast, year. probability) (95.4 when First, noteworthy. 9.4 features Three column). first row, second entry (corresponding 46.5 year following less probability percent, 2550 a them carry inflations extreme suggests certainly Cagan. by ahyperinflation had also (six) half percent,20 400 experienced economies market eleven see we 9.3a, withinformationin 9.2 combining Finally, rise. than fall likely still level, 200-percent reaches until Third, explosive. more is higher idea captures range.19 next-to-last 47.1 lowest 4.6 from increases years); fifteen Brazil years) seventeen (over Argentina were longest The list. completing Turkey (three Lebanon episode), (one Israel episodes), (two Afghanistan with Zambia) Uganda, Sudan, Somalia, Leone, Sierra Guinea-Bissau, Ghana, Congo, Republic Democratic (Angola, Africa (nineteen nine Venezuela), and Uruguay, Suriname, Peru, Nicaragua, Mexico, Jamaica, Rica, Costa Chile, Brazil, Bolivia, (Argentina, Caribbean or America South episodes) (eighteen Twelve appendix). (in 9.A.1 table presented are countries 25 45 data Detailed annum.21 per percent 100 exceeds necessarily episode an average that imply it nor month, every range within be to rate monthly require not does definition This 2. section in defined as inflation high very episodes on focus will attention our most chapter, this remainder the In Inflations High Very 2.2 hyperinflation. of danger 1.

particularly group, countriesin thanthatofmanyother less studied been has experience whose African highvery these surprise The years. fifteen totaling episodes six Zaire) (formerly Congo Vegh Carlos Sahay, Ratna Fischer, Stanley 266 presentdatasuggestingthat40percent (1995) Easterly Bruno Israel.22 American ofLatin seem does Nor fall. likely for no there so, Even rises. it unstable become tends impression confirm These percent. toward rises rate increases shows 9.4, table ranges defined morefinely uses 9.5, larger. much becomes annum per to rising which threshold, a number Calculated 1. Statistics. Financial International IMF, Source: 3857 Total 113 28.3 71.7 >100 27 48.1 37.0 80100 51 41.2 29.4 15.7 6080 107 41.1 25.2 7.5 4060 388 41.8 12.6 1.0 2040 3171 0.0 6.0 0.1 <20 Current fall rise Number be Will Range that Probability year1 current depending year percent 100 inflationbeing probability economies: Market Table 25 than more episode one least suffered have countries 1960, since However, stable. low low, is inflation countries, time, most summary, In inflations. high on emphasis an with process, inflationary aspects different characterizations useful present 9.5 through 9.2 Tables inflation. 40-percent at discontinuity countries). 133 from 19601996, data annual cross-section (pooled, initial of percentage as respectively, below, next range, above and 100% the in observations by followed range critical significant given

confirms revisits effect, To processes.23 inflationary underlie variables macroeconomic key determine try step natural inflation, behavior dynamic documented Having Mechanisms 3Inflationary lower unstable relatively equivalently, or, higher increase likely suggest Further, percent). 100 above twelvemonth very episode an experienced have economies market 133) (out 25 many annum, per percent Inflations High Hyper-and Modern everywhere always inflation therefore, sense, narrow) (admittedly In correlated. highly are run, long economics: tenet While (1963). Friedman Milton argued famously phenomenon, rely section in exercises econometric several Since Methodology Data 3.1 inflation. level with varies how examine quantify us allow which processes, autoregressive on based definitions two providing persistence issue tackle Finally, techniques. using explain indeed deficits find large, By imbalances. fiscal explanation standard with? begin triggers what question: next leads This persistence). (i.e., dynamics own its shocks temporary by driven be allowing thus accommodative, typically policy monetary triggered, been has once that saying however, result, this interpret growth. changes exchange-rate runs sense) Granger (in not, often that, finding basic Our rate? exchange money/ to inflation from causation reverse there Or inflation? cause does causation: is question The answers. it than questions more raises inflationactually growth money between correlation high point, starting a large used We them. behind methodology common sample describe first we techniques, regression set data quality both However, covered. period time the and countries of number withregardtoboththe possible as useful

a condition imposed sample, number maximize run allthe maintainconsistency countries. across widely varied macroeconomic several on data availability Vegh Carlos Sahay, Ratna Fischer, Stanley 268 . ln.1 as defined rates, over average simple representing observation (long-run) cross-sectional show 9.6 table 9.2 Figure Inflation Money 3.2 relationships. these examine formally will section remainder deficit. seigniorage, growth, levels exhibit 9.1, evident countries). (70 countries) (24 GDP) balance GDP), percent seigniorage (M2), averages shows 9.1 figure stage, set To effects. period-specific country regressions all episodes. from differed episodes their whether see tested high-inflation subsamples addition, interest. variable dependent affect variables independent lags also regressions, panel section).24 previous described (as high very episode one experienced that this 24 highcountries, coefficients different allowed we below, reported type For observations. with economies), market (all selected 94 Consequently, regressions. running needed GDPthat nominal balance, fiscal deposits), currency foreign (including broad money, reserve inflation, variables five of each for period 19601995 during observations ten least at were there if only included be x where therefore, run, long In 2). countries low-inflation high-and into up broken sample when even holds Furthermore, 1). column 9.6, (table significant highly 1.115 fact in coefficient regression The one-to-one.25 to close strong extremely is inflation and growth money between relationship shown, As rate. annual corresponding the x=100.

a 1.115 line regression Slope averages. 19601995 (M2) Inflation 9.2 years; averagingover then year, group that all for average the taking by calculated is bar Each text. defined as High-inflation Note: balance. fiscal and seigniorage, growth, money Inflation, 9.1 Figure 269 Inflations High Hyper-and Modern observations. more or 10 with each total, in countries 94 12.13; of t-statistic

rate1,2 variable: Dependent growth. money Infl 9.6 Table (1) variables Independent countries ation infl section highCrosspanel Annual parentheses) in OLS Intercept (7) Fixed4,7 (6) OLS6 (5) (4) Fixed4 hi3 Intercept/ Intercept/low3 1.115* M21 1.091** hi1,3 (30.64) 0.804** low1,3 (74.75) (109.70) ** (5.57) (7.50) 0.242** 0.190** hi( low( M2/ 0.111** 1,3,5 0.059** (2.10) 0.100** 0.978** 0.513** 0.881** 0.421** * 0.152** (3.89) 0.228** ! ( Vegh Carlos and Sahay, Ratna Fischer, Stanley 270 T 3 8 2 1 0 statistics (12.13) 0.886** 0.165** 4.98) 6 .069* .19) .041 .87) .028** .972* .011* 8.160) .219* 11.92) 16.33) 6.40) .078** ) 3.78) 4.26) 21.86) 9.97) 17.30) 6.37) 2.57) .085 .17) .022 .047* .96) .13) .54)

RAdj. 0.937 0.919 0.922 0.902 0.925 R-squared , 10at cance Signifi Note: estimations. authors Statistics; Financial International IMF, Sources: 380 410 2130 2318 94 Observations 0.933 0.918 0.917 0.897 0.855 0.923 0.916 fined de1. rate Infl respectively. stars, three two, one, by indicated is level 1-percent . ln.1 as growth money Inflations High Hyper-and Modern 7. cant. signifi dummies Time 6. significant. not was regression this effects 5. lags. variables independent the next parentheses in number The 4. indicated. otherwise unless significant are which dummies, time country both with model xed-effects afi refers Fixed episodes. or countries ation infl lowhighcients fi coef3. to refer low and Hi 2. existed. it if heteroskedasticity for corrected results All country. per observations 10 of Minimum growth.. squared 5inflation/100., M2

Vegh Carlos Sahay, Ratna Fischer, Stanley 272 ran question, answer To run? valid remain money-inflation Does inflation. strong take then growth. allow low-and allowing addition which, annual 4 highly remains while episodes. test includes lookingat we surprisinggiven perhaps aresult lower, much coefficient groups 5) 6 columns subsample periods. current evenly distributed contrast, countries; early remarkably growthoccurs ofmoney inflationary dramatic: quite transmitted speed countries between contrast The countries. across different significant lagged contemporaneous coefficients 5), regression panel included two When regressions. account into taken fact results 7), find also We through. carry money a everywhere always knows: schoolchild every what confirms overwhelmingly evidence therefore, sense, this off.27,28 turned are taps monetary if ended doubt no can there for-one, oneprecisely nor instantaneous necessarily not may relationship While run. short long in both strong, exceptionally link inflation-money show data sum, 6). column 9.6, (table contemporaneously place takes effects bulk that shows lags adding findings, previous our with line In money.26 for demand on high impact negative (ii) and years, rate inflation relative important more being growth GDP (i) due be to likely which countries, high-inflation within episodes low-inflation high-and during effect wisdom. of beginning the only is however, This, phenomenon. very short-run differential

take governments rare believe reasonable popular, inflations relevant growth? What question: remains established, link money-inflation With Inflation Rates, Exchange Money, 3.3 Inflations High Hyper-and Modern have decision if inflationeven view, deficits: fiscal question usual inflation.29 ahigh produces decisions sequence evidence consistent made can latter payments. balance caused over hyperinflation German after during controversy active there introduction, noted instance, rate.30 interest wages, unemployment, it be economy, equilibrium with inconsistent outcomes real producing directed policies instance policies, inappropriate consequence unintended high hence growth, rapid that drives what answer alternative shortly. view this turn shall phenomenon. (VARs) autoregressions runningvector tests Granger-causality inflationwe lags growth see particular relationshipsin dynamic disentangle try To rate. leads or reacts whether issue light shed should inflation, money, dynamics short-run examination forth). so payments, reparation shocks, trade terms loans, external access speculation, (e.g., forces exogenous moved being is wherethenominal aconstantrealexchangerateincircumstances maintain to seeking as policy monetary thinking phenomenon then We VAR. unrestricted an ran first we country, For data. timeavailability in gaps large because conducted not was countries high-inflation very seventeen remaining analysis An details).31 9.7 table (see country available were which period sample longest for series quarterly consisted economies. market 24 eight only from data on based are results The growth. money and change), (percentage rate exchange nominal rate, inflation the containing system a at one variable, each excluding by VARs restricted of deliberate set three-variable time,

quarters) (in dummies1 quarters Years lengthMoneyrateCountry AnnualizedAppropriateExchangeaverageSeasonallag countries ation infl highselected tests Causality Granger VAR-Based 9.7 Table Argentina change3 ation3 Infl No 5 1966: 3 1970: 1 1967: 4 2 Yes 2. cant. most was that one by determined length Lag 1. 5-percent significant jointly they when regressions VAR the in used were dummies Seasonal calculations. authors Fund; Monetary Statistics, Finance International * level. 10-percent 5at cant signifi Vegh Carlos and Sahay, Ratna Fischer, Stanley 274 levels. percent 10or growth3 191.8 20.7 99.1 26.2 32.6 46.0 59.3 3. . 1991: 1989: 1994: 1996: not Ghana Jamaica Peru Somalia Sudan Turkey Uruguay Sources:

report table columns three last significance.32 statistical basis on chosen length lag appropriate most regression. unrestricted significant jointly only used dummies Seasonal causalitytests. three-way presents 9.7 Table rejected. these whether see tests chi-squared conducted system) three(still variables two equations Inflations High Hyper-and Modern reduced was changed monetary stopped could growth, caused circumstances, some that, implying interpreted should regression These versa.33 vice than more run appears causality Granger picture overall The rate. exchange changes each do while growth money Granger-cause movements exchange-rate indicate results Argentina, case example, For dash). (a reject does or star), (one 10-percent stars), (two level 5-percent at regressions VAR from interest variable exclusion rejects test lead adjustment required distribution over battles inflation, commit credibly found were mechanisms if even Second, 1988a). Calvo instance, (see, expectations publics validate not government costlyfor too become it continue, expects public once First, reluctance. such reasons several may There inflation. chronic rid needed costs incur reluctant are dynamicsand/or own its exogenous by driven be allowing above)thus mentioned view shocks-and-accommodation shocks accommodate tend policymakers because continues imbalances), fiscal being candidate obvious (the decisions policy other result undesired an emerges initially is plausible find we which very persistence creation for explanation One level.34 low a As 1991). Drazen Allan Alesina (Alberto further proceed support political erode will that inaction 1993). Grilli Vittorio (Drazen better they before 1980s) late Brazil and Argentina in as inflation high extremely outbursts of form the (in worse get to need often things period result,

deficit identity: flow derive links These seigniorage, analysis empirical turn question, answer To out? bear data does But imbalances. results it inflation origins ultimate about view held commonly most above, mentioned Inflation, Deficits, 3.4 Vegh Carlos Sahay, Ratna Fischer, Stanley 276 . As seigniorage.35 equal debt initial governments plus payments) interest net (i.e., requires which temporal interassociated an addition, In inflation. from emerging link inflation-deficit .1. instance, For (1). identity within terms among relationships dynamic complicated there constraint, this imposed restrictions expect we Hence, deficit. source) afinancing (as association apositive suggest arguments tax optimal constraint budget intertemporal borrowing, financed be may deficits higher run, short though Even deficits. exploring start We Seigniorage. Deficits Fiscal arithmetic.36 monetarist (1981) Wallaces Sargent shown tomorrow, more require necessarily will today use less deficits, primary value discounted present expressed each balance, cross-sectional shows Figure analysis).37 econometric used variable (which between money high-powered stock computed was Seigniorage economies. market 94 GDP, A year. that GDP nominal by divided year, to average on leads balance fiscal reduction aten-percentage-point 1): column 9.8, table 9.3 (figure visible is relationship a as (both revenues in increase Nicaragua. and Malta, Argentina, Chile, Israel, for recorded GDP) percent six than (more seigniorage levels highest the with GDP), of borrowing result given negative 1.5-percent share

!0.152 is line regression Slope Note: averages. 19601995 balance, Seigniorage 9.3 Figure 277 Inflations High Hyper-and Modern 1 columns (compare cross-section results compared quantitatively unchanged remains but significant even data annual observations. more or 10 with each total, 94 !2.30; A significant. isstatistically between difference insignificant. becomes and falls while sharply rises 3), low-inflation high-and allowed different average, on leads, countries reduction point (both seigniorage in increase a expected, as yields, OLS simple run, are economies high-inflation subsample regressions panel When 3). 9.8, (table 0.334 to 0.048 from R-squared adjusted raisesthe terms) constant (and coefficients separate Allowing GDP). 4 economies(comparecolumn market all for obtained that than coefficient higher balance fiscal the of effects largest The 9.8). table 2, column t-statistic tenpercentage4.2-percentage-point share much

. .RM 1. respectively. stars, three two, one, by indicated level 1-percent 5-, 10-, at Significance Note: estimations. Statistics;authors Financial International IMF, Sources: 410 2318 94 Observations 0.392 0.135 0.334 0.075 Adj. 0.416 0.137 0.371 0.048 0.085 R-squared (!0.52) !0.041 (!5.84) !0.627*** (!4.72) (0.36) 0.007 (!14.52) !0.420*** (!5.33) (!2.30) Fiscal/low1,3 Fiscal/hi1,3 !0.376*** (8.13) 2.77*** !0.152*** (17.27) 1.626*** !0.152** (6.48) 1.455*** Fiscal1 Intercept (5) (4) (3) Fixed4 (2) panel Annual (1) OLS section Crossvariables Independent parentheses) (T-statistics seigniorage1,2 variable: Dependent balance. Seigniorage 9.8 Table Vegh Carlos Sahay, Ratna Fischer, Stanley 278 refers Fixed 4. episodes. or high-and coefficients refer low Hi 3. existed. it if heteroskedasticity for corrected results All 2. GDP. percent defined output period last RM.!1. period, current money reserve RM where periods: obtained significant. are which bothof dummies, time country withboth model leads reduction a rises countries though Even Seigniorage. Inflation years. to compared inflation high periods strengthened deficit-seigniorage countries, these even Moreover, countries. high-inflation only strong between relationship that show thus data The insignificant. statistically and small is years low-inflation during revenues on balance fiscal effect hand, other On 5). column 9.8, (table ashare both revenues, seigniorage in increase increases, deficit the as GDP of RM.!1.%/GDP, fixed-effects ten-percentage-point 6.27-percentage-point share

.9.563*LN(1 0.806 line Regression Note: averages. 1995 1960 inflation, Figure 279 Inflations High Hyper-and Modern there rises; decline eventually because complicated likely between relationship observations. more or 10 each total, countries 94 respectively; %1.31 2.65 are coefficients on leading thus base, rate growth than terms, proportional more, may balances money basereal tax rates high at revenue fall reason rise. to continues effect curve estimate deficits, fiscal for used those samples same Working seigniorage.38 Seigniorage form: following of betweenseigniorage . b expect we where g positive a reaching rises, as rise revenues seigniorage is, that negative, be which 2), column 9.9, (table 9.4 figure presented is plot sectional crossThe rate. inflation the in increases further with declining then and inflation/100) 4.691*(LN(1 inflation/100)2;t-statistics Laffer nonlinearrelationship maximum .inflation.2;

variables Independent highCross-section panel Annual parentheses) statistics (Tseigniorage1,2 variable: Dependent seigniorage. 9.9 Table 1.157* Intercept (6) Fixed4,5 (5) (4) (3) Fixed4 (2) OLS 5.44** ation1 (2.51) 4.246* ation/hi1,3 (2.65) ** 3.342* ation/low1,3 Infl (5.19) (8.00) (15.52) Infsq1 (1.89) (2.13) (0.74) (2.83) 10.85* hi1,3 * ! 5.006 low1,3 Infsq/ ( (0.73) RAdj. 0.398 0.425 0.421 0.397 0.339 R-squared , 10at Signifi Note: estimations. authors Statistics; Financial International Sources: 410 2318 94 Observations 0.370 0.343 0.386 0.361 0.347 0.332 fined de1. Seigniorage respectively. stars, three two, one, by indicated level 1-percent as ned defi output andGDP period last 1. RM.! period, current in money reserve RM where /GDP, 1.% . ln.1 square is infsq a refers 4. Fixed espisodes. or countries ation infl lowhighcients fi coef3. to refer low Hi 2. existed. it if heteroskedasticity for corrected results All Vegh Carlos Sahay, Ratna Fischer, Stanley 280 5. cant. not effects Period ed. specifi otherwise unless of cance signifi the indicate Results dummies. time and country both with model 9 4 2 1 0 R 0.806* (5.81) 9.775* 3.950** 2.0134.474** squared 5inflation/100. inflation/100.. fixed-effects ) 7.15) .563* .938** 17.55) .691 .31) .586* .94) .655 .17) M .628** .47)

!0.010 line regression Slope Note: averages. 19601995 inflation, balance 281 Inflations High Hyper-and Modern from message main The percent. 174 reaches maximized revenues Seigniorage relationship.39 nonlinear estimated observations. or 10 each total, 94 !2.45; a that notion consistent are findings These 6). only with sub-sample 4) visible constant different when insignificant becomes however, relationship, This regression. cross-section relationship 1, 9.10, in shown As sample. whole link deficit-inflation shows 9.5 Figure Inflation. Deficits Fiscal 5). high-inflation subsample episodes and 3) column 9.9, (table countries low-inflation high-and both for significant rate inflation on coefficient expected, as that, indicates 9.9 table regressions, linear terms In inflation. of level higher the emerge to likely more is curve t-statistic Laffer

(1) OLS variables Independent countries section highCrosspanel Annual parentheses) in (T-statistics rate1,2 inflation variable: Dependent balance. scal andfi ation Infl 9.10 Table 0.113** Intercept (6) (5) (4) (3) Fixed4 0.447* hi3 Intercept/ ** 0.083* Intercept/low3 Fiscal1 hi1,3 low1,3 0.000 hi * low Fiscal/ ! 0.002 1,3,5 ( (0.76) Vegh Carlos and Sahay, Ratna Fischer, Stanley 282 3 8 5 2 0 1 (4.16) (13.16) 7.26) .010* .00001 .042** 7.49) .63) 1.23) .38) .005 .43) .19) .77) .32) .028** .51) .27) .001 .012 .54) .34) .032** .52) ) .007 .07) .45) .016** .063* .024* .001) .014 .057* 1.08)

RAdj. 0.644 0.543 0.542 0.442 0.556 0.032 R-squared , 10Signifi Note: estimations. authors Statistics; Financial International IMF, Sources: 380 410 2130 2318 94 Observations 0.586 0.478 0.512 0.408 0.541 0.021 . ln.1 at de1. rate Infl respectively. stars, three two, one, by indicated level 1-percent a Fixed episodes. or countries ation infl lowhighcients fi coef3. refer low Hi 2. existed. it if heteroskedasticity for corrected All GDP. percent balance thefi as ned defi is scal andfi Inflations High Hyper-and Modern 5. lags. refers variables independent to next parentheses in number The ed. otherwise4.specifi unless of cance signifi the indicate results These dummies. time and country both with model xed-effects squared 5inflation/100.

A 3). does becomes considered, When 2). economies market high-and allowed coefficients terms Vegh Carlos Sahay, Ratna Fischer, Stanley 284 1 periods, 5). sense subsample through carry panels annual from results basic not but withallthe substantially, 4) percent. 4.2 rate an GDP leads reduction a up come first, twofold: aim Our persistence. refer will which dynamics, inflations issue explore now We dynamics. own its shocks real accommodation monetary perpetuated imbalances by caused typically believe we far), so findings our consistent (and above As Persistence Inflationary 3.5 episodes. high-inflationcountries inthe explaining important are Lags episodes.41 strong quite relationship, countries. during or countries low-inflation found balance fiscal and between relationship short-run long-or obvious no sum, In 6).40 column 9.10, (table significant statistically being episodes high-inflation lag second with substantially fit improves lags introduction case also It rate. in increase argued however, (1982), Sargent inflation. reducing costs output curve-related Phillips for responsible rates low at present that inertia inflationary wisdom, conventional according because, relevant is point latter The rises. level the as falls inflation if test to second, and, persistence of measure percent 1-percentage-point 6.3-percent quantitative

cost no eliminated been have hyper-inflations Inflations High Hyper-and Modern A policy. change form:42 (AR) autoregressive following take process let empirically, argument examine attempt In inflation. moderate high from stabilize costly less it making thereby inflationary reduces place takes contracts shortening views Sargents interpretation i t, time at rate pt where .2. . Mean ijaij follows: as inertia, indices two define then We i.i.d. term error ut length, maximum average an This i.If each ai,associated coefficient, by weighted has index Otherwise, simply n case for occurs which unity, bound integer smallest chose is, That lag. this after before equally frequency) total ai,(the .1 Pin coefficients, thesum m,ischosensuchthatitdivides lag, Pm Pm"1 that: a m If i.1 jaij Pn 9.11.43 reported inflation lowhigh-and revised with sixteen, reduced thus sample quarters). ten (less close adequately subsequent when Uruguay) Uganda, Leone, Sierra Mexico, Ghana, Congo, Republic Democratic (as 9.A.1 table some combined we however, sample, our number increase To estimation. econometric itself lend short too far was very several of duration data.Unfortunately,the quarterly using 2.2 section identified were countries examined now high-inflation than episodes low-inflation in higher are lengths and mean that hypothesis The zero. be to defined also is lag median the zero, credible common Xaipt"i .3. lags, lower such 0:5 .4. equals 1.

inflation Episodes Country AverageAppropriateannuallagMeanMedianRcountries infl highin inertia ation Infl 9.11 Table a Argentina lags cients coeffi Calculated squared lag 0.46 1974: 0.369 1991: 0.220 0.12 0.06 Bolivia 0.916 0.49 0.24 1981: 0.412 0.58 0.337 0.28 0.27 Brazil2 0.346 0.85 0.39 1980: 0.753 0.81 Chile 0.652 0.11 1971: 0.324 1977: 0.333 0.50 1968: Dem. Congo, 0.610 0.19 0.07 0.47 of Republic 0.783 6.0 0.94 0.80 0.56 7 0.36 1963: Ghana 0.656 0.14 0.13 0.16 0.29 1976: 0.524 4.0 1984: 0.76 0.33 5 Israel 0.664 2.0 0.51 0.18 0.26 6 0.31 1978: 0.738 3.0 0.10 0.04 0.34 0.22 ! 0.05 8 1986: 0.773 5.0 2 0 1959: Mexico 0.00 0.0 0.30 1982: 0.647 3 0.69 1988: 0.555 4 1 0.53 Vegh Carlos and Sahay, Ratna Fischer, Stanley 286 0.278 1.0 28.0 3.4 310.6 6.2 3.2 12.5 3.3 789.3 12.3 2.9 38.0 2.5 357.6 24.7 3.7 229.9 19.4 26.1 5.6 281.8 3.5 13.3 4.2 72.2 27.7 2.4 14.3 3.1 139.9 5.3 14.1 10.1 90.6 20.6 a2 length1 .07 .37 .22 .02 .03 .29 .26 .13 .30 .19 .28 .12 .31 .66 .67 .47 .10 .49 .54 .33 .16 .08 .90 974: 991: 980: 971: 977: 976: 984: 978: 986: 981: 988: 997:

Nicaragua 0.75 8 0.36 0.00 0.06 1984: 0.847 0.89 0.771 0.58 Peru 0.335 0.31 1982: 0.739 0.54 0.08 0.458 0.88 0.30 1961: Leone Sierra 0.925 0.13 5 0.34 0.43 0.09 1986: 0.478 Sudan 0.04 1990: 0.582 5.0 Suriname 0.05 1992: 0.129 2.0 1.03 0.14 0.76 0.66 6 1996: 0.892 4.0 1981: Uganda3 1989: 0.53 ! 0.20 0.11 7 1959: Uruguay3 0.720 3.0 0.37 0.39 1975: 0.436 0.22 0.50 3 1988: Zambia 0.457 1.0 1 2 1994: 4 0 Fby reduction Model 1. calculations. authors IFS; Source: 0.000 0.0 ( . last) next compared significant last the when stopping lags dropping Inflations High Hyper-and Modern period. sufficient allow to combined been have periods ation infl lowand highSome 3. small. too is size sample because ignored period Last s 15.3 3.4 54.3 19.2 22.2 413.0 2.4 19.4 1.6 17.9 3.8 90.0 23.0 16.7 4.5 102.7 9.3 1.8 177.4 4.2 8.0 99.0 19.5 3.6 49.2 1.5 56.0 1.3 127.8 31.4 tests .07 .03 .08 .56 .50 .05 .36 .01 .18 .02 .06 .21 .54 .98 .11 .16 .30 uccessively . 984: 982: 992: 986: 989: 991: 995: 998: 988: 974: 994: 997:

."2:21. .0:63; R2 Adj: log.p. ."0:54 were: introduced dummies country countries, across markedly differ often indexation regarding arrangements institutional regression. OLS ran countries sixteen thesampleof42episodesforthe pooled we inflation, level between relationship test formally To from drawn conclusions similar period. post-stabilization last their not appears economy degree Leonethe Sierra Nicaragua, countriesChile, other three episodes. low-inflation high-or either evidence no virtually there Zambia, Mexico while increased have appear indices Israel In Zambia. Suriname, Mexico, Israel, exceptions four length. by confirmed lowthan episodes high-inflation during lower is inertia that hypothesis exceptions, some With important. seems persistence inflation large, By 9.11. table reported results These ineachcountry. eachepisode for calculated median mean (4), (3) equations using Finally, calculated. asinequation(2) estimated bsin model,44 appropriate of determination Following ."bn"1: an "b1; .b2 a2 .b1; .r a1 follows: those to related are (5) coefficients where i.1 .5. .ut; .XbiDpt"1 .rpt"1 pt n"1 as: rewritten be can (2) equation Specifically, 528). p. (1994, Hamilton following differences, first run regressions episodes, several present were roots unit Since follows. as was lengths lag the computing in employed procedure empirical The Vegh Carlos and Sahay, Ratna Fischer, Stanley 288

. R2 Adj: log.p. ."0:58 lag median Inflations High Hyper-and Modern even sense) (in persistent equally persistent, highly model) Cagans supply money (i.e., variable policy underlying some extent To inertia. capturing indeed processes autoregressive univariate based clear entirely not simplicity, virtue have above defined inflationpersistence while First, order. remarks Several results? these make do What rises. falls view results level. 5-percent at significant were Zambias, exception dummies, country All coefficient. regression below reported t-statistic where ."2:43. estimating require for testing (1993), Leiderman Leonardo argued Hence, frictions. nominal expectational abstracts embodies model give tend practices institutional indexation capture also will they fundamentals, addition since, useful, measures AR-based believe still we shortcoming, obvious spite manner. a from support receives belief This 1998). Taylor John (see since ever falling been has 1970s rise increased Reserve Federal within wisdom conventional persistence. debate ongoing an findings relate useful perspective, into issue put to Finally, tracks. stopping effective so rate exchange begging makes that hyper-inflations inertia disappearance it fact, inertia. eliminate completely should construction, by which, currency expressed all Cagan), la a` hyperinflation full-blown (a case extreme currency. foreign denominated are prices more and/or shorter becomes contracts length increases, as reason main The priors. with consistent is less exhibits higher average, on that, result our Second, own. its discussion his positive. be would inflation U.S. of persistence level between relation the therefore, view, this In (2001). Sargent and Cogley Timothy in out carried procedure multivariate 0:60; structural falsifiable life sophisticated

influenced unduly measures AR-based argument, merits Whatever with volatility confuse tends specification their view, his that, fact finding Sargent ley Cogattributes years.45,46 forty past over changed has States United persistence representationthat univariate an arguesbased (2001) Stock however, Sargent, Vegh Carlos Sahay, Ratna Fischer, Stanley 290 into translate necessarily seem not do techniques sophisticated more as representations, AR simple learned much there debate reading our all, All countries. developing phenomenon analyzing comes it when feature important a after before just at looking by disinflation thereal secondexercisedealswith performance. effects thus inflation. low sectionswith defined inflationas periods themain theaveragebehavior compares one first out. carried exercises Two disinflation. ofkey examines above countries on focuses section This Stabilization Inflation Effects 4Real persistence. measure (For low-inflation 22.4 percent 739 was Average years. lowyears high-inflation forvery different averages presents figure Specifically, sections.47,48 previous identified economies market 25 eighteen for data annual using very episodes during variables macroeconomic of behavior in differences summarizes 9.6 Figure Periods Low-Inflation High-versus Very 4.1 stabilizations. money-based than beexpansionary morelikely are stabilizations rate-based exchange is, that matters; anchor nominal the and expansionary be may inflation high from stabilization whether exercise this to related issue main The way. under is process particularly cleaner

. log.1 shows figure purposes, scaling countries. performance Macroeconomic 9.6 Figure 291 Inflations High Hyper-and Modern x where terms, real appreciated, currency domestic periods. 4.2 increased it while years, 3.3 growth Investment 1.7 1.3 which capita, consumption private for holds pattern same 1.4 rose episodes, very annum 1.6 by fell capita per GDP Real surprises. few There inflation. low 16.7 984 devaluation/depreciation terms.) percentage devaluation or rate the either at depreciated and 2.7 a as deficit, account current years. 1.8 characterized are inflation high periods average, on sum, In (4.2 GDP) percent (7.8 during deficit fiscal average The percent). (2.4 high-inflation than percent) (3.6 years low-inflation in higher is GDP, of x=100., proportion

by Carlos Ratna Stanley 292 1996 Fischer (see view consistent figure particular, performance.49 macroeconomic associated thus High deficits. fiscal terms), real (in currency appreciating capita, per consumption, GDP, levels 40 (1995) Easterly Bruno rates. nature over controversy however, is, There growth.50 finding unanimous topic The survey). likely very increases beyond point, searches Sarel Michael percent. 50 occurs point cutoff find (1996) Vegh Sahay, Fischer, economies, transition case crisis. 8 annual an it locates A generate bound resources allocation affects adversely model Any growth? fact stylized explaining work could mechanisms specific What expected. be volatility higher literature, business-cycle Based surprising. hardly behavior growth, notion accepts one If magnitude. twice about GDP those magnitude order same roughly changes with investment, consumption suggests also 9.6 Figure growth.51 good evidence no there but inflation; rates low nonexistent or weaker growth; bad literature summary,the significant. statistically not it, below related; negatively are rate, Above countries. 711 percent 13 at estimated is growth slows significantly above level threshold the that finds developing countries industrial separately relationship analyzes 2000) Senhadji Abdelhak Khan (Mohsin paper recent instance, for Consider, growth. and between correlation as acts rate which (1981) Stockman Alan spirit in a (through investment lower to lead will inflation high periods context, this In goods). capital of purchase the on contraction brief danger breakpoint more negative tax cash-in-advance

hence, and, Inflations High Hyper-and Modern assuming sideand wages. employment, leads labor reduces This stock. capital generate investment both distorts theextentthatany general results These periods. highexpensive making will interest goodshigher purchase lead should higher result described, just model simple version open-economy Specifically, odds. at appears rate predictions, theoretical consistent 9.6 figure captured account current while Finally, other.52 consumption output, investment, between correlation (i.e., non-tradables price relative a question, this answer To program. stabilization an fall much how but if not typically question entrenched so contractionary notion fact, In forgone. terms costly countriesholds industrial experience on wisdombased Conventional Disinflation Variables Real 4.2 inflation.53,54 ongoing spite fixed less or more kept been have rates nominal numerous by explained be might years, high-inflation during appreciates sample our which rate, exchange real behavior that conjecture thus We deficit. current-account intoa translate would goods tradable demand lower hand, other On run. short inelastic isrelatively response sincethesupply currency) of depreciation somewhat are estimates Balls While Kingdom. United France 0.8 to Germany 2.9 from ranging ratio sacrifice contractionary, always is exception, one that, found data quarterly using countries OECD nine episodes disinflation 28 examined (1994) Ball Laurence 1986). Fischer and 1982; Gordon Robert 1978; Okun Arthur instance, for (see, inflation in reduction percentage per loss output percent cumulative as defined disinflation, with associated ratio sacrifice so-called the computed has literature cash-in-advance negative large

generate other 1980) (1979, Taylor (1977) Fischer la a` models staggered-contracts economy, closedconsistent course, is, fact stylized This output. terms costly industrial disinflation notion support continue they literature, earlier those lower Carlos Ratna Stanley 294 a Easterly(1996),however,has stabilizations. pronounced being expansions stabilizations, expansionary favor economies transition evidence find also 1997) (1996, Sahay, Fischer, programs.56 later only occurring contraction with consumption, expansion initial led actually stabilization) rate-based (exchange on based countries chronic-inflation programs have Vegh (1992) Liviatan Kiguel processes, inflationary mundane much case recently, More cost.55 no small achieved was that argued classicalhyperinflations four output behavior examined (1982) Sargent paper, influential In unchallenged. gone not has wisdom conventional Phillips-curve-based 1972). Lucas (Robert curve Phillipsby denoted time.58 stabilization macroeconomic main profiles time compute Profiles Time Stabilization 4.2.1 issues. important these revisit proceed now We not.57 rate exchange anchor nominal whether irrespective occurs countries, high-inflation from feature general where j ends, inflation high very episode an which 1 (at positive turns zero basically growth GDP Real percent. 25 around stabilizes but fall continues and stabilization sharply falls Inflation 9.7. figure first Consider 60 T. to relative calculated then are variables paths average The stabilization.59 following or preceding years number 3. ...; T 3percent than more at peaking stabilization, of A stabiliza before year the in essentiallyzero is it growth: consumption per-capita for holds profile short-run ..$3; percent) . similar j, 2.

around tion investment. GDP, Inflation, 9.7 295 Inflations High Hyper-and Modern 2.6 at peaking 9 "1:2percent jumps It pattern. same fits per-capitadomestic-investment variability, exhibiting While end percent 10 above exhibits nominal growth rate expected, As variables. macroeconomic other behavior shows 9.8 Figure investment.61 consumption, output, expansion an associated be appears high countries, low-inflation happens what contrary that, idea with consistent therefore evidence preliminary This until appreciating is which rate, exchange real rate. inflation pattern a reaching stabilization, throughoutthe worsens accountbalance current The stabilization. throughout so do continues and stabilization before depreciate begins 4 8 than more from falls deficit fiscal the Finally, year GDP of 2 to close T in similar trough . 2, 2. 3to 3.

coefficients significance shown as output response expansionary evidence There mixed. somewhat dummies, respect With LIBOR. changes significantly only investment whereas negatively by positively affected Consumption sign.63 expected LIBOR, growth least at and, significant highly are all instance, case In variables. explaining in role important an play to appear control Note investment. consumption, GDP, for results show which columns, first Consider terms).62 (in LIBOR shocks, trade terms growth, OECD factors: external three dummies,controllingfor on variables macroeconomic main regressions presents 9.12 table questions, these To behavior. such causing itself process disinflation than other factors whether question address does nor profile, time any, if significance, statistical of sense no offers it expansionary, be may inflation high from stabilization that idea the with consistent is 9.7 figure While balance. fiscal account, current rate, exchange real Devaluation, 9.8 Figure Vegh Carlos and Sahay, Ratna Fischer, Stanley 296

(5) rate (4) (3) (2) (1) GDP GDP) %of (as gross private Change Current Growth Dependent during 9.12 Table Inflations High Hyper-and Modern (2.02) (0.11) ("3.14) ("1.85) ("2.67) 11.03** 0.14 "17.06*** "2.48 ("0.35) (1.70) (1.10) ("1.25) "1.88 2.21 5.96 "1.97 ("0.87) (0.74) ("0.22) (0.02) (0.24) "4.39 0.93 "1.17 0.03 ("0.69) (0.44) (1.71) (0.68) "3.42 0.55 9.45* 1.85 ("1.62) "8.75 (0.01) 0.02 (0.61) 3.64 (0.71) 1.20 (1.75) ("0.24) "1.52 ("1.01) "1.48 (1.11) 7.24 (1.13) 2.07 (2.28) respectively. stars, two, one, indicated is level 1-percent 5-, 10-, at Significance OLS. was estimation Method terms. capita per expressed are variables dependent three first parentheses. T-statistics Note: observations 285 395 365 355 428 Number ("1.92) ("2.42) ("2.00) ("3.27) "1.17* "0.29** "1.06* "0.49*** "0.40*** LIBOR Real (3.68) (3.75) (1.20) (1.83) ("4.00) trade 0.070*** 0.015*** 0.024 0.011* "0.004*** Terms ("1.05) ("0.25) (0.42) (1.18) (5.45) growth "1.00 "0.04 0.31 0.26 0.60*** OECD ("0.65) "4.07 ("0.74) "1.18 (1.37) 9.99 (0.34) 0.67 (0.59) T on coefficient growth, investment case In growth. consumption response significant any no however, is, There mentioned as Since, expansionary. be may that hypothesis of favor in evidence weak only provide far so results The Matter? Anchor Nominal Does 4.3 not large, by are, dummies time stabilization ratethe exchange real and account current variables two other the to As significant. 0.71 . 1 2 3 1and 2. "2.80 "1.05 0.24 2.07* 2.92** 0.77

until high stays then stabilizationand value positive already stabilizationfrom upon very rises (eighteen). (nine) 9.9 Figure expansionary interested mainly since investment, consumption, focus We purposes. sufficient classification way twostabilization.65 types combination assorted an include based rate non-exchange rest (ERBS).64 classified can which sample, our 27 out selected we effect, hand. thisissue examining isworth anchor, nominal depend may disinflation effects argued been has it above, Carlos Sahay, Ratna Fischer, Stanley 298 sharply fall a show both they similar, qualitatively growth, respect With exactly fit The pattern. discernible shows stabilizations profile sharp 1999). Vegh Calvo (see studies other with line finding time . (T GDP real shows, (1) stabilizations. subsamples: before regressions type same presents 9.13 table issue, this into further look To rate-based exchange episodes nine these by driven basically 9.7 figure whole profiles indicate to seems thus evidence This stronger. much change quantitatively, A are variables controls three before, As significant. never (2), column shown as contrast, different. indeed stabilization, years two first In average from different significantly not 3 holds story 5 (columns investment stabilization. after non-ERBS for significant, highly stabilization of year in growth consumption ERBS, For 4). T on coefficient that however, said, be should It sample. nonand between difference no there 6), whereas level, 11-percent at significant is sample ERBS the jump but, 2and similar 2only 3. 1)

stabilizations. non-ERBS and ERBS 9.9 Figure 299 Inflations High Hyper-and Modern

(6) (5) (4) (3) (2) (1) ERBS Non-Non-Noninvestment gross consumption GDP private real Growth Dependent stabilization non-exchange-rate-based versus Exchange-rate-based 9.13 Table Vegh Carlos Sahay, Ratna Fischer, Stanley 300 (!2.56) (!2.04) (!1.74) (!2.25) (!1.70) !16.97** !18.87** !3.22 !1.51 !2.93** (0.92) (0.46) (!1.58) (!0.19) (!1.06) 6.08 4.26 !3.02 !0.49 !1.37 (!0.59) (0.31) (!0.99) (1.29) (!0.48) (0.90) !3.86 2.85 !1.83 3.28 !0.60 (0.88) (1.63) (!0.80) (3.28) (!1.23) (2.90) 5.81 16.14 !1.48 8.98*** !1.55 (!0.06) !0.74 (0.60) 6.54 (!0.63) !2.00 (1.20) 3.62 (!0.03) !0.07 (1.65) T (!0.22) !1.87 (0.54) 5.35 (!0.46) !1.08 (0.97) 2.65 (!0.62) !1.04 (1.52) respectively. stars, three or two, one, by indicated is level 1-percent and 5-, 10-, the at Significance OLS. was estimation Method terms. capita per expressed are variables dependent All parentheses. in T-statistics Note: observations 365 355 428 No. (!1.96) (!0.52) (!2.93) (!3.47) (!3.60) (!3.90) !1.04* !1.00* !0.44*** !0.52*** !0.36*** !0.39*** LIBOR Real (1.30) (2.00) (1.50) (!4.00) (!5.00) trade 0.026 0.023 0.012** 0.009 !0.004*** !0.005*** of Terms (0.62) (0.50) (1.27) (0.85) (5.82) (5.36) growth 0.46 0.38 0.28 0.26 0.64*** 0.59*** OECD (0.43) 4.35 (0.02) 2.14 (1.15) 2.98 (!0.27) !0.90 (1.35) 2.37 (!0.04) 5.34*** . 1 2 3 !2.94* !0.79 1.56 3.60* 3.02 !0.09

light that, predicated hypothesis) temporariness referred (often popular expansions. short-run observed explanation plausible considerations demand-side view We goods.68 durable consumption, private sharp feature themostconspicuous theseprograms, many observers To case? would Why anchor. exchange use on based when particularly run, short suggeststhat above reviewed The Explanation Search 4.4 consumption.66,67 output initial an leading disinflations, real matters anchor idea consistent This our present essentially due consumptionare and GDP evident mostly stabilizationwhich expansionary suggests here shown evidence sum, sample. ERBS coming also sample full growth investment found we effects whatever Hence, insignificant. highly non-ERBS for Inflations High Hyper-and Modern (via goods purchase needed cash model, typical In temporary. expect agents positing formalized been typically has credibility (1986), Calvo Following credibility.69 lack from suffer bound programs most attempts, failed history that so constraint) resulting thus present, toward future switch consumers induces (i.e.,temporary) anon-credible Then, consumption.70 of price effective reduces rate interest under place take boom sticky, were prices addition, If, boom. a not perhaps this credible, fully as viewed be likely is countries inflation chronic no since However, stages. early its non-credible was program which episodes in booms explain only can it construction, by First, hypothesis. temporariness with problems potential two are There expenditures. consumption higher accommodate to endogenously increase cannot supply money nominal the because stabilization damaging rich cash-in-advance lower money-based very

fact important More criticism. Sahay, Ratna Fischer, Stanley 302 critically relies level, once every his/her replaces buys/ only consumer given any (since level individual an lumpy While goods. purchase rules) (S,s) rules inventory-type follow model, (1998). Guidotti, Pablo Gregorio, De Jose offered demand-side Arelated, established. been yet has considerations these about additional Unfortunately, 1988b). (Calvo speculation price engage also households goods, Second, 1991). Samson Lucie Fauvel Yvon (see higher become substitution account, into taken consumption if that, suggest evidence there First, reasons. two performance improve introduction formal however, noted, be should It 1995b). Vegh (Reinhart limited rather hypothesis power explanatory quantitative low, typically parameter this estimates Since substitution. elasticity intertemporal now Consider times). different at durables (as smooth initially they produces bunching resulting The Benz). Mercedes todays becomes Toyota years next (i.e., upgrade even perhaps bring decide today good their buy/replace planning were response, effect. wealth/income sort some generates by followed necessarily boom consumption. durable-goods for them replace want not will goods durable theirpurchases forward brought that all because until time de-bunch would consumers shocks, idiosyncratic presence In generating capable thus mechanism This time. over constant are purchases aggregate which reached is state steady a presents (1982) Specifically, Cagan.72 spirit expectations, inflation backward-looking on based was (1982), Rodriguez Carlos originally consumption, explanation demand-based early and another Yet credibility.71 of lack resort having without cycle bust boomfalls rate nominal condition, parity interest the to due which, in large while), stabilization slowdown while. new model

leads goods home excess impact. demand aggregate expanding falls, backward-looking, expected Since devaluation. one-to-one Inflations High Hyper-and Modern economy throws eventually currency, provides thus This acts idea stabilization.73 unleashed may side supplyfocused strand another Finally, 1999). Calvo (see mid1980s heterodox many as impact, increased programs cannot, It contribution). Rodriguezs inspired program, 1978 Argentine happened (as interest domestic fall early an there which episodes explanation plausible removal Hence, capital). working readily-available hold expensive it making or choice) consumption-leisure distorting (by either lead would resulting investment, supply labor be likely responses such While output. level higher see should one true, if Also, weak.74 best, at be, seems investment response empirically, that, is hypothesis problem main The effects. expansionary short-run to ability about skeptical remain we above), examined literature growth inflation (in long-run factor explanations nest (1995) Vegh Sergio data? confronted when better does above Which anchor. nominal regardless stabilization, expansion a explain can picture, into costs distribution introducing how, show who (2000), Rebelo Neves, Joao Burnstein, Ariel by made recently been front this on progress Further programs. these most appreciation large accounting problems has Still, magnitudes. any for account helping in effects supply-side however, Quantitatively, regularities. empirical key replicating capable are wages sticky temporariness only that conclude they above, described models simple with line In power. quantitative qualitative their compare and model appreciation. rate exchange real observed the of fraction sizable more recession. coherent tax distortion permanently major single much

longer no it seriously taken say safe least It conclusions. similar arriving seem methodologies with researchers different notion, this accept would everybody not increasing ideas. policy harmful cemetery buried remain should process part inevitable perhaps or growth good may old least, at So, there. clearly performance macroeconomic between correlation negative resolved, far causality mechanisms over debate growth. for bad abundant now There Sum In 4.5 Vegh Carlos Sahay, Ratna Fischer, Stanley 304 unlike theoretically: sense makes expansionary. likely exchange-ratebased equal, being things other that, matters anchor nominal idea supports evidence believe also We program. inflationarystabilization expansionary think inducing by naturereduces its whichby stabilization as attractive so why This channels. real results demand increase whatever accommodate will endogenous is supply money stabilizations exchange-rate-based crunch, from exit how issue though levelseven form reducing advent before Based world. throughout commonplace been has 1957, Since 1. stabilization: related facts stylized important most ten are judgment, Here, drawn. be still can conclusions general some experiences, diverse rich very offers economies) transition 28 economies market (133 161 sample While stabilization? and inflation high world through journey long our after learned What Inflation High on List Ten Top Conclusion: 5In unresolved. remains crisis a (for 133 in per-annum 25-percent episode an experienced have countries the two-thirds than more that find we observations), 45,000 to close of heresy money-based liquidity means peg potential total

8 around percent; 20 close annum; 50 has one-third flation; Inflations High Hyper-and Modern a strong remains link money-inflation panels, time-series cross-section pooled, low-inflation stronger found countries, low-and divided strong. growth money between (cross-section) long-run expected, As 5. 19891996). Congo Republic (Democratic 27.4 3.6 vary during Monthly 19741991). (Argentina months 208 months) (twelve possible minimum from ranges Africa. or America Latin either took very Thirty-seven countries. such 45 identified months. twelve there stays bound lower below falls before last period month first start take case, rises rate twelve-month when place taking inflation high very an define We 100 rates with processes inflationary longer common Much seven). total (a rare been definition) Cagans (meeting hyperinflations 1947, 4Since increases. level current its rise will that and decreases range same staying probability rises, as that, find we matrices, constructing By unstable. be tends Higher 3. liberalization. price related were these inflations extreme Most percent. 400 excess in suffered 80 almost Indeed, annum. per percent 25 above episode one least economies transition 28 all economies, market contrast In 2. long. surprisingly years, 34 and, similar remarkably inflation levels different at duration average The inflation. per-annum 400-percent than more of episodes experienced have long to compared unchanged basically countries high-inflation for relationship however, divided, is sample the When whole.

growth. particular, performance. macroeconomic bad with associated Periods 9. levels. higher reaches weakened are rigidities nominal notion supports evidence This rises. level processfalls autoregressive median length lag mean as either inertiadefined Inflation 8. panels, series time annual inflation. (cross-section) no find We data. detected be always cannot deficits expected 7. countries. insignificant but strong short In negative. significant is seigniorage balance fiscal between data) cross-section (basedon relationship long-run The 6. weaker. much becomes low-inflation for whereas run, Vegh Carlos Sahay, Ratna Fischer, Stanley 306 a had do rate exchange the based not were which Stabilizations consumption. expansion initial an lead appear stabilizations rate-based Exchange 10. years). 4.2 3.3 investment and years) 1.7 1.3 consumption private years); low in 1.4 growth positive to (compared annum percent 1.6 by average fell capita per GDP real periods, such During episodes. inflation high very experienced have that countries eighteen of investment. or consumption, output, on effect sample

Highest average months) (in End Start DurationCumulativeGeometricArithmeticGeometricCountry episode of Date inflation after During high monthsDuring Twelve rate Monthly economies market ation infl highin episodes ationary Infl 9.A.1 AppendixTable 1985 Afghanistan 19.8 2.9 25.6 6.5 12 Jan. Angola 3.9 n.a. 3.6 109 21 1974 Argentina 1.8 84.1 22.3 21.0 287,726,172 78 1997 1971 Chile 4.4 1.7 80.7 16.1 15.4 20,759,903,275,651 182 1995 May 1980 Apr. Brazil 2.4 0.7 182.8 22.1 19.5 5,220,261 61 1981 Aug. Bolivia 1.4 196.6 13.5 12.4 3,809,187,961,396 208 1991 Dec. 4.2 3.0 87.5 11.6 11.1 127,958 68 1977 250.0 32.0 27.4 88,510,051,965 85 1996 n. 1988 1986 July 3.1 6.4 6.3 202 1989 1982 Oct. 20.4 5.5 16.6 5.2 5.1 18 1987 1978 Feb. Congo, 3.8 0.8 25.1 5.9 146 16 1984 Inflations High Hyper-and Modern Rep. Dem. 8.4 2.8 76.5 5.8 4.7 317 31 1980 O J A June a. ct. uly ug.

1967 Congo, Highest average months) (in End Start DurationCumulativeGeometricArithmeticGeometricCountry episode of Date inflation after During high monthsDuring Twelve rate ation infl Monthly (continued) 9.A.1 Table 18.2 6.1 101 1968 Rica Costa Rep. Dem. 1980 4.9 0.3 23.4 6.0 243 22 1984 1982 2.6 1.0 10.7 5.8 120 Sept. Guinea8.9 22.8 567 34 1979 1976 Ghana 7.9 13.2 5.7 257 23 1981 1978 Israel Bissau 12.6 25.0 5.5 5.1 146 ! 22.6 5.0 4.7 118 17 1.1 10.2 124 14 1991 Apr. Jamaica 3.3 1.7 27.5 8.4 8.3 109,187 88 1990 Mar. 1.9 1985 14.2 4.4 50.1 9.6 9.0 2,345 37 1985 Aug. Lebanon 10.3 17.7 6.2 100 12 1991 Mexico 2.5 1.3 15.5 724 33 1988 Dec. 9.3 1.6 261.1 30.3 26.1 288,735,412,719 94 Feb. 1984 May Nicaragua 6.4 4.2 11.2 5.9 180 18 1983 1982 June Peru 4.8 3.5 397.0 25.9 21.5 25,392,223 64 1992 Vegh Carlos and Sahay, Ratna Fischer, Stanley 308 4.6 13.9 6.7 6.6 1,953 47 1986 Opr. D 0 J A ct. ec. .1 uly

SierraFeb. 1986 SierraNov. 2.5 19.9 689 35 Leone 16.1 24.1 144 14 1987 6.4 388 26 1983 Somalia 1990 Sudan 9.0 19.6 5.6 140 16 28.3 6.7 2,715 53 ! 40.7 9.7 9.3 4,559 43 1992 Apr. Suriname 1979 5.0 24.7 5.8 269 23 1993 May Turkey 1984 8.1 21.5 6.0 199 19 1980 1981 Feb. Uganda 6.9 3.8 37.9 8.3 8.0 9,071 59 5.3 1.5 43.8 7.0 6.6 160 15 1982 Jan. 6.5 14.7 414 27 1991 1971 Dec. 11.4 4.4 6.3 107 1974 1966 Oct. Uruguay 16.8 4.5 20.3 5.9 256 22 1973 1995 July 2.7 1.2 17.9 336 25 1968 12.6 5.5 161 18 1996 n. 1988 June Venezuela Inflations High Hyper-and Modern economists. desk IMF and authorities, national Statistics, Financial International IMF, Sources: 7.7 29.5 7.4 7.3 11,713 68 1994 Mar. 1988 Aug. Zambia 3.3 2.4 21.3 6.2 6.1 103 12 1989 J 0 D A M Nov. Sept. a. une .3 ec. pr. ug. ay

definition, Cagans was, addition, 1946. 1945July II, 1944; 1943Nov. Nov. Greece, Feb. 1923 I, Hungary 1923Jan. Poland, 1923; 1922Nov. Aug. Germany, 1924; Jan. 1921 Dec. Russia, 1922; 1921Aug. Austria, were: hyperinflations seven 2. IMF. necessarily paper this expressed views assistance. research excellent Singh Kartikeya Mishra, Prachi Mora, Nada Gill, Manzoor Adams, Claire discussions; comments helpful meetings AEA Bank, IMF, participants seminar referees, anonymous Ucer, Murat Seth, Sahay Maansi Montiel, Loungani, Prakash Jadresic, Esteban Hamann, Javier Flood, Bob Doyle, Peter Bartolini, Leonardo paper; writing stage contributions her Bank World Hallward-Driemeier Mary thank 1. Notes Vegh Carlos Sahay, Ratna Fischer, Stanley 310 4 under averaged AD 301 edict control Diocletians up leading century Inflation 3. 1948). Huang (Andrew 1948 March 1947 Oct. from China adage example early been appears This 4. Paarlberg (Don annum per nature these Since lifted. were controls price when 50-percent ofmore month one atleast suffered SovietUnion, former those especially economies, transition because months two less lasting episodes We 5. poor. held valuable too reportedly solidus tax, 2 War post-World rate monthly peak The 6. them. exclude definition changed have we inflation, process ongoing an adjustment 41:9 was hyperinflation . converge tend that suggests evidence experimental 1990), (Michael equilibria sunspot possibility rule not does theoretically, While, equilibrium. curve Laffer nonexplosive) (i.e., good economy lead will process) other any (or learning whether becomes question key equilibria, multiple presence In 9. literature. later formally developed subtleties mechanisms contain authors war inter-world accounts verbal course, Of 8. (1998). Stadler George Laidler David see expectations; role emphasized also analysts time, at that, noted be should It specifying decision-makingof criteria weak some satisfying plausible equally waysall different many are there (1990), Woodford out pointed as Also, 1993). Sunder Shyam Marimon (Ramon steady-state inflationary convergence speed analyze (1995) Sargent Thomas Marcet Albert models, linear case process. a models ARMA fitting learn agents in reduced fixed is spending nominal instance, for if, arise which Tanzi converse effect, Patinkin so-called points (1998) Cardoso Eliana revenues. tax than more falls expenditure government value real if deficit fiscal reduce actually could inflation high However, 10. (2001). Honkapohja Seppo GeorgeEvans by review seetheexcellent hypothesis, expectations rational the to relation its and learning on details For variables. state of percent regressive price-level Hungarian 1015 7. low setting subset

study (1998) Nicolini Pablo Juan Marcet 11. inflations. Brazilian during operative was mechanism equilibrating inflationan Inflations High Hyper-and Modern countries. chronic outbursts sudden explain learning Of 16. Hungary. China, 1986 Vietnam, states Yugoslavian 1990 Poland, 1988 Union, Soviet former 1992 Mongolia, Europe Eastern most 1991 being economies, across vary tend they Thus, availability. data freed prices when depend selected dates starting 15. percent). 25 (corresponding months, those 80.1 44,910. 9.3a country-months number total 14. section. later discussed (1995) Easterly William Bruno Michael some examining approach follow different differently behaves suggest found, any If probabilities. transition breaks look would proceed way One work. previous largely draw paper used ranges 13. ours whereas based his: respect important one differs it article, classic his (1956) Cagan on modeled definition Although 12. (1993). Zarazaga Carlos see vein, calculated have We 17. percent. 1.9 were 37 rates, 2,023 remaining range, per-annum 200400 but all For inflation. corresponding matrix a (2002) Rogoff Kenneth Reinhart Carmen See 22. 1996). (December period sample by dictated Venezuela) Congo (in episodes two end also Note annum. per less within average (geometric) episodes, 45 thirteen 9.A.1 table from seen can It end. episode an months twelve least percent 100 below stay twelve-month namely, definition; requirement end-point because This 21. Suriname. Peru, Nicaragua, Lebanon, Israel, Congo, Republic Democratic Chile, Brazil, Bolivia, Argentina, Angola, countries eleven 20. ranges. observations few relatively there However, 19. interchangeably. probabilities frequencies refer 9.5, and 9.4 tables discussing In 18. rates. compared rates variability greater mainly due are results These for higher uniformly fall rate that probability the Further, data. annual than monthly with smaller range Afghanistan. is data) lack (due included not country high-inflation only The 24. economies. market to attention our restrict relationships long-run at looking mostly be will we since onwardsand point this From 23. Africa. in inflation high of analysis model similar given recent

favor model OLS reject 26. line). regression furthermost (the Nicaragua 9.1 figure outlier 25. Carlos Sahay, Ratna Fischer, Stanley 312 taken have we causation about talking aware 27. countries. highacross common effect overwhelming indicating one, But correlations. inflation-money goes necessary controllableif potentially always since step, early-1920s Soviet sometimes It 29. arithmetic). monetarist unpleasant celebrated 1981 Wallaces (i.e., high cost at purchased only will low Otherwise, addressed. mustbe problems underlying permanently, taps off turn able 28. practices. operating imposing VARs ran We 32. episodes. high-inflation very confined period sample 31. (1995). Reinhart, Calvo, (1994), Melnick R. Fischer Bruno (1986), Gros Daniel Adams Charles others, among see, countries; chronic policy monetary view accommodation shocks so-called This 30. paid. not could reparations demonstrate attempt was hyperinflation German argued been has policy; act entirely (1973), shown fact, 34. 2000.) Paal Beatrix (See inflation. stronger typically causality hyperinflations, seven Cagans based conclude, (1973) particular, (1973). Wallace Sargent 1979) (1977, Frenkel hyperinflations classical analysis earlier also They (1990). Wolf Holger Sturzenegger, Federico Dornbusch, (1989) Montiel conclusions consistent broadly thus are Our 33. Somalia. case except unchanged, were restrictions exclusion significance statistical on results length. three-quarter 36. sense. intertemporal an solvent authority fiscal presupposes formulation this Naturally, 35. constraint. budget through influences expected publics because growth money causality amodel, such In spending. ofgovernment amount real afixed need driven is which in a possible it inflation, actual behind lag expectations instance, If, seigniorage. rate between relationship from emerges shape curve Laffer 38. 1989). Vegh example, for (see, deficit than rather spending government level with associated closely more be should suggest taxation form another as treats that perspective finance public The 37. today. trigger may policies future of anticipation how show (1990) Helpman Elhanan and Drazen vein, rate. maximizing revenue state steady the beyond even inflation accelerating by seigniorage increase to fixed-effects step short change deliberate uniform similar time

. ln.1 defined rate before, As 39. Inflations High Hyper-and Modern money high-powered seigniorage however, (2001), Terrones Catao 41. fit. improve additional expect one apriori deficits, primary value discounted present finance inflationary determining relevant since Notice 40. GDP. andinflation deficits relationship run longpositive significant has measure processes autoregressive univariate 42. panels. heterogeneous relationships equilibrium dynamics short-run distinguishes estimator using 19702000, countries market emerging with (5) equation estimated 44. data. due limited low-inflation followed preceded they themselves, short were Suriname Angola episodes high-inflation While 43. (2001). James (1986), particular, see, literature; tradition 47. Sargent. Cogley comments Sims Christopher See 46. inflation. representation AR root largest by persistence measures Stock 45. lags more included significant, seventh If model. belonged trend dummies whether see length lag appropriate determine reduced was F-test, Using episode. each atrend dummies, seasonal lags, seven as taken year first ends or year, half second begins episode documents (2001) Braumann Benedikt 49. balance. fiscal 499 account, current 407 change 285 investment 365 consumption 355 GDP capita 533 590 rate, exchange nominal 647 There considered. variable according varies observations number total Note sub-period). available longest (or 19601995 annual consists sample Somalia. Nicaragua, Lebanon, Jamaica, Guinea-Bissau, Angola, Afghanistan, excluded we data, lack Due 48. year. 2 up example rates, negative low extremely related positively showed research further if surprised be not would thus growth, bad is deflation believe to plausible quite it find We 51. (1995). Easterly Bruno Gregorio De (1993), Fischer example, See, 50. episodes. 23 analysis based inflation, high periods during wages real decline calibrate (1998) Cardia Emanuela Ambler Steve 52. annum. per predict indeed does that conclude They lines. these along model a long-run, in and, series time for (both growth and inflation between insightful an offer also authors The shocks. exogenous underlying on depend will correlation this of size the endogenous, are variables both Since section). inflation=100. share statistically panel long maximum sharp percent richer cross

With 54. rate. devaluation/depreciation much is, same; not are samples fact related This percent). (739 percent) (984 nominal though even periods rate exchange 53. regressions. standard interpreting associated pitfalls Carlos Sahay, Ratna Fischer, Stanley 314 periods, during results: expected Braumann episodes), (23 At findings. some issue Forteza Alvaro Echenique Federico (1996) Gould (1999). Calvo Guidotti, Gregorio, De 1995a), (1994, Reinhart hypothesis, favor econometric For 56. (1993). Bruno (1992) Vegh see (1986); Wicker Elmus Garber notably most challenged; itself (1982) Sargents 55. accounts. external improvement hand goes depreciation definition, 9.A.1). table listed countries, 25 (45 above point selecting In 58. growth. output would more fear slow, been has inflation, moderate at starting cases, other show they rates; digit triple disinflation (growth-increasing) successful rapid extremely cases several discuss (1998) Fischer Burton David disinflation. speed optimal bears growth between relationship evidence this none noted should It 57. countries. important have necessarily view against argue (1997) Zarazaga Kydland Finn level, fundamental ends, take half second ends If 59. (1). Zambia Venezuela Uruguay Uganda Turkey Suriname Sudan Leone Sierra Peru Mexico Israel (2), Ghana Rica Costa (3), Congo Chile Brazil Bolivia (1), (Argentina countries: 18 27 with up we purposes), sample our end (the 1995 ongoing episode (iii) and one, into consolidated were months 12 less separated episodes high very which instances (ii) data, lack (i) Due starts. differ. may time stabilization year each observations number Notice 60. year. following be T Based market. stabilizations effects analysis an for (2002) Henry Peter See 61. variables. across differ also such defined variable 62. terms. dollar real 24 by average appreciates market stock domestic year, per percent 40 than higher rates inflation from stabilizing when that, finds he episodes, 81 denotes index in a that implies it as unexpected somewhat is on sign The 63. improvement. does same the enough, Interestingly output. lower to leads shock trade of terms smaller given . way rise positive j

lead Inflations High Hyper-and Modern defy other but (1975), example, as, rates) (i.e., characterized they because stabilizations) money-based opposed stabilizations non-exchange remaining refer choose purposely We 65. (1986). Israel 1992), (1969 Uruguay Peru (1989), Mexico (1977), Chile Brazil (1992), Argentina (1995), parenthesis) criteria our according episode (initial include These 64. expect. one account, current improvement increase relied (1981) Turkey latter example An classification. resemble formally enough over argued As rates). floating dirty case (as authorities monetary control was supply money extent, least stabilizations non-exchange-rate characteristic important exceptions, Withfew unofficial). (official rates dual out carried Africa episodes most noted should It 1991). Rodrik constant less or rate exchange keeping at aimed rule based suggest, results (1996) Easterlys contrasts 66. money-based perhaps after observations effects, real these on focus attempt make do we study, 9.13. table regressions significant show does however, feature, literature. discussed ERBS contraction late suggestive 9.9 figure Note 67. Hamann Javier see spirit, same non-ERBS. thebehaviorofERBSand between difference no there that episodes, 28 roseby consumption) proxy good (a sales car plan, Convertibility 1991 Argentine years four first 25 70 rose period), analogous (and stabilization Israeli 1985 During percent. 26 only increased while peaked, which year program beginning from doubled than more consumption goods ERBS, Chilean 1978 instance, For countries. groupof asmall (1998) Guidotti, Gregorio, De provided data by supported This 68. 2001). Braumann 1999, (see called would methodology different In 70. others. among (2001), Venegas-Martinez Francisco (1999), Uribe Martin Mendoza Enrique 1994a,b), (1993, (1986), 69. consumption. private total for percent 30 compared percent, 400 under happen not could boom this goods, durable purchase needed were assets liquid some if Again, 71. rate. interest nominal function increasing an is consumption of price effective the setting, a to applying reinterpreted be can story Rodriguezs (1994c), in shown as that, Notice (2001). Ghezzi (1994c) Vegh Calvo (1985), Fernandez (1982), Dornbusch also See 72. stabilization. indexation). wage looking backward (reflecting wages sticky and expectations rational with clear PPP-type pure sample slightly staggering cash-in-advance model

at Also, 74. (1997). Uribe 1997), (1995, Roldos Jorge (1995), (1997), (2000, Amartya See 73. Carlos Sahay, Ratna Fischer, 316 level, on rely they these some aspect unsatisfactory good particularly costs, adjustment lags, featuresgestation do goodwhich While, transactions. cash level tie seem would evidence no there particular, In interpretation. economic be investment that view, a from essential assumption an such 2001), Lahiri clear made (as results desired generate necessary not good Monet. forthcoming NBER; 7862, Exchange-Rate-Based-Stabilizations, during Dynamics Costs Distribution 2000. Rebelo. Sergio Neves, Joao T., Ariel Burnstein, Bank. World mimeo, Steady-States, Accommodation Run ShortIntegrating Dynamics: Melnick. R. 353374. 105, Quart. Trap, High Rules, .1990.Seigniorage,Operating 347371. Harvard MA: Cambridge, Porath, Ben Crises.Yoram through Maturing Economy: Israeli Accommodation, Shocks Process: Fischer. Stanley Cambridge. NBER, 5209, Long-Run Crises Inflation 1995. Easterly. William Michael, Press. Oxford Oxford: Consensus. by Therapy Reform: Economic Stabilization, Crisis, 1993. Michael. Bruno, 1931. Italian Original 1968. impression Third Kelley. Augustus NY: Inflation. Economics The 1937. Constantino. Bresciani-Turroni, IMF. 01/50, paper work. Wages, High 2001. Benedikt. Braumann, 155182. Press, Chicago U. Chicago: ed. Mankiw, Policy.N.G. Ratio? Sacrifice Determines What 1994. Laurence. Ball, 93110. 64, Polit. Finance, Inflationary Cost Welfare 1956. J. Martin Bailey, 89116. Canada, Policy.Ottawa:Bank Monetary Targets, Stability, Price Growth, Inflation between Link Testing 1998. Cardia. Emanuela Steve, Ambler, 11701188. 81, Rev. Econ. Amer. Delayed? Stabilizations Are Why 1991. Drazen. Alan Alberto, Alesina, 439476. pp. 33, Pap. Staff IMF Examples, Illustrative Some Inflation: for Rules Rate Exchange Real Consequences The 1986. Gros. Daniel Charles, Adams, References 1995). Vegh and Rebelo (see data in observed magnitudes orders actual the replicating chance any have to is models type this if view of point theoretical somewhat number qualitative cash quantitative

y Inflacion 1989. Manns. Enrique, Cardenas, Publishing. Edgard History.Aldershot,Hants,England: Major 1991. H. Forrest Capie, 15311614. Holland, North Amsterdam: Woodford,eds. Michael Taylorand Macroeconomics.John Handbook Countries, Developing Crises BOP .1999. 5984. 43, Contracts, Backward-Looking .1994c.Stabilization 3545. 12, Pol. Contemp. Anchors, Nominal .1994b.Inflation 377420. U. ChristopherSims,ed.Cambridge:Cambridge II, Econometrics,vol. Advances Framework, Basic Policy:A Credibility .1994a. 328. MacMillan, London: Worgotter, Andreas Frischand Macroeconomics.Helmut Open-Economy Credibility, Imperfect under Stabilisation Rate-Based Exchange 97133. 47, Devel. Rate: Real Targeting 1995. Reinhart, M. Carmen A., 461473. 35, Pap. Staff Mobility, Capital Goods Liberalizations: Trade .1988b.Costly 641667. 78, Amer. Expectations, Role Debt: Servicing .1988a. 13191329. 94, Polit. Rates, Exchange Predetermined Stabilization: Temporary 1986. Guillermo Calvo, pp.25117. Press, Chicago Chicago:U. ed. Friedman, Money.Milton Theory Quantity Studies Hyperinflation, Dynamics Monetary The 1956. Phillip. Cagan, 1596. Hungary, Bank National IMF DC: Washington eds. Szapary, G. Economies.C.Cottarelliand Transition Experience The Inflations, Moderate Ending Fischer. Stanley David, Burton, Inflations High Hyper-and Modern A Inflation: Fiscal Terrones. Marco Luis, Catao, 98/41, Effect, Patinkin Deficits Virtual Eliana. Cardoso, 5779. 56, Trimestre El Revolucion, la durante Mexico en Monetaria 147164. 57, Stud. Rev. Policies, Macroeconomic Anticipated Consequences Inflationary 1990. Helpman. Elhanan Allan, Drazen, 131. 105 108, Goods, Durable of Consumption Stabilization Inflation 1998. Vegh. A. Carlos Guidotti, E. Pablo Jose, 271298. pp. 31, Econ. Monet. Growth, Long-Run Taxation, Inflation, 1993. Jose. Gregorio, De Annual. Macroeconomics NBER in forthcoming Dynamics, Inflation U.S. II War Post-World Evolving 2001. Sargent. J. Thomas and Timothy, Cogley, IMF. 01/74, paper work. Evidence, Market Emerging the at Look Estabilizacion New

887912. 16, Public Ser. Conf. Carnegie-Rochester Stability, Inflation Transition M. Peter Garber, House. Pub. Asia Consequences.Bombay: Causes 1963. Milton. Friedman, 8196. 5, during forMoney on .1979.Further 653670. 67, Rec. Hyperinflation, German Money: Demand Rate, Exchange Forward Jacob Frenkel, 417420. 27, Quart. History, Massachusetts Standard Tabular 1913. C. Willard Fisher, 79102. Pub., KluverAcademic ed.Norwell,MA: Zecchini, Transition.Salvatore Lessons Prospects, toMarket:Evidence .1997.From 4566. Perspect.10, Experience, Early The Economies: Transition Growth Vegh. A. Stanley, City,pp.734. Kansas Stability.Fed.Reserve Achieving Stability? Price Long-Run Pursuing Banks Central Are Why .1996. 482512. 32, Monet. Growth, Factors ofMacroeconomic Role .1993.The Press,pp.247269. Cambridge,MA:MIT ed. Policy.S. Inflation, Indexing, Disinflation, Targets versus Rate .1986.Exchange 191205. 85, Polit. Rule, Supply Money Optimal the Expectations, Rational Contracts, Long-Term 1977. Stanley. 871892. 13, 19761982, Argentina, to Approach Management 1985. Roque. Fernandez, 192205. 24, J. Can. Analysis, Empirical An Goods: Durable Substitution Intertemporal 1991. Samson. Lucie Yvon, Fauvel, U.Press. economics.Princeton:Princeton MacroExpectations Learning 2001. Honkapohja. Seppo W., George Evans, Uruguay. Republica la de Universidad Berkeley U.C. mimeo, Expansionary? Programs Are 1997. Forteza. Alvaro Federico, Echenique, 67107. 22, Pol. High from Evidence Expansionary? Stabilization Is When 1996. William. Easterly, 184. 2, Act. Pap. Brookings Stabilization, Dynamics Inflation: Extreme 1990. Wolf. Holger Sturzenegger, Federico 144. 7, Bank Inflation, Moderate Fischer. Rudiger, 701708. 10, Devel. World Learned? We Have What Countries: Developing in Policies Stabilization 1982. Rudiger. Dornbusch, 598607. pp. 83, Rev. Econ. Amer. Reforms, Economic for Crises of Benefits The 1993. Grilli. Vittorio Allan Drazen, Vegh Carlos and Sahay, Ratna Fischer, Stanley 318

A Stabilization: Exchange-Rate-Based Javier. Hamann, 1923.Princeton:Princeton 1920 Germany, Production Prices, Exchange, 1930. Frank. Graham, Dallas. 9611, Matter? Anchor Nominal Choice Does 1996. Gould, 1140. Press, Chicago: ed. Hall, Effects.Robert Causes Inflation: Episodes, Historical Fourteen from Evidence Costly: Be May Stopping Why 1982. Gordon, 127147. 53, Persistence, Credibility, Indexation, Backward-Looking 2001. Piero. Ghezzi, Inflations High Hyper-and Modern 324. 4, Theory Money, Neutrality Expectations 1972. Robert Lucas, Polit. 18611865, Confederacy, Prices Money, 1955. M. Eugene Lerner, Chicago Experiment.Chicago: Israeli Disinflation: 1993. Leonardo. Leiderman, 816831. Banking,30, Credit, Money, Literature, German Contemporary Contributions Neglected Some Hyperinflation: Republics Weimar Explanations Monetary 1998. Stadler. W. George David Laidler, Control,25,pp.11571177. Dynam. Supply, Labor Endogenous Role The Frictions: Real Stabilization Based Rate .2001.Exchange 351373. 50, Int. Uncertainty, Policy Programs Disinflation Amartya. Lahiri, 2136. Dallas, Reserve Fed. quarter, 4th Different? Argentina 1997. Zarazaga. E. Carlos E., Finn Kydland, 279305. 6, Rev. Bank World Stabilization, Rate-Based Exchange with Associated Cycle Business 1992. Liviatan. Nissan Miguel, Kiguel, IMF. 00/110, paper work. Growth, between Relationship Effects Threshold 2000. Senhadji. S. Abdelhak S., Mohsin Khan, Princeton Princeton: 19121917. of Experience Mexicos Revolution, 1940. Edward. Kemmerer, 562575. 62, China, Inflation The 1948. C. Andrew Huang, 16171648. 57:4, Finance Market? Stock for Good Disinflation Is 2002. Peter. Henry, U.Press. Analysis.Princeton:Princeton Series Time 1994. D. James Press. U. Harvard MA: 15011560.Cambridge, Spain, in Revolution Price Treasure American .1965. 4270. 51, Econ. J. Quart. System, Laws John under Paris Wages and Prices 1936. Earl. Hamilton, 111138. pp. 48, Pap. Staff IMF Facts, Stylized the at Look Critical

a Equilibria Indeterminacy Sunder. Shyam Ramon, Marimon, 179215. Blackwell, Basil Oxford: Salmon,eds. Mark Kirman Alan Economics. Rationality Perceptions, ARMA with Learning Squares Least Recursive Convergence Speed Sargent. Thomas 1875. discus. CEPR Learning, Hyperinflations Recurrent 1998. Nicolini. Pablo Juan Albert, Marcet, 10671074. 91, Polit. History, Money Paper Nationwide First Hypothesis Cagans 1983. T. Francis Lui, Vegh Sahay, Ratna 320 A Credibility: Lack Booms,and Rates,Consumption Interest .1995b.Nominal Destruction? Own Seeds Carry Stabilizations Do .1995a. Countries, Inflation 1994. 125174. Annual,pp. Macroeconomics NBER Theories, Competing Stabilizations: Rate-Based Effects Real 1995. Vegh. Sergio, 6168, Reforms), Monetary Side Real (The Rates? Exchange Their Peg Countries When Happens What 1997. Sergio. Rebelo, Pub. Academic Switzerland:Harwood tics.Chur, PoliCredibility Policy, Macroeconomic 1990. Tabellini. Guido Torsten, Persson, America.NY: Latin Chronic 1972. Felipe. Pazos, Praeger. Inflation.Westport: History 1993. Don. Paarlberg, U. Stanford Hyperinflation, Hungarian Second Reevaluation Empirical An Currencies: Parallel Inflation Measuring 2000. Beatrix. Paal, 348352. 68, Proceed. Rve. Amer. Policies, Disinflationary Efficient 1978. M. Arthur Okun, 527549. 36, Pap. Staff IMF Israel, Brazil, Argentina, Episodes High-Inflation Analysis Empirical 1989. Peter. Montiel, NBER. 7014, paper work. Stabilizations, Exchange-Rate-Based Syndrome the Risk Devaluation 1999. Uribe. Martin Enrique, Mendoza, 10731107. 61, Econometrica Evidence, Experimental World: 323358. Press, MIT MA: Cambridge, eds. Liviatan, Nissan Helpman, Elhanan Fischer, Stanley Bruno, Aftermath.Michael Its Economic Lessons Turkey, in Decade Ozal Stabilization: Incomplete Liberalization, Premature 1991. Dani. Rodrik, 801811. 10, World 20th, December Plan Stabilization Argentine The 1982. A. Carlos Rodriguez, IMF. mimeo, Instability, Currency Stability Price of Role The Africa: to FDI 2002. Rogoff. S. Kenneth and M., Carmen Reinhart, 357378. pp. 46, Econ. Devel. J. Examination, Hyperinflationary Quantitative

Stock Capital Anticipated 1981. Alan. Stockman, H. James Stock, Annual. Macroeconomics NBER forthcoming Dynamics, II War PostWorld Evolving Sargents Cogley Discussion Christopher. Sims, 117. 5, Quart. Minnesota UnpleasantMonetaristArithmetic, .1981.Some 328350. 14, Hyperinflation, Expectations Rational 1973. Wallace. Neil 474518. 103, Revolution, French Features Macroeconomic Velde. R. Francois J., 4197. U.Chicago Chicago: ed. Hall, E. Consequences.Robert Causes Inflation: Hyperinflations, Big Four Ends The 1982. Thomas Sargent, 199215. 43, Growth, Economic on Nonlinear 1996. Sarel, 3754. 16, Money Int. Account, Current Rate,and Exchange Disinflation,the Gradual On .1997. 158183. 42, Programs, Disinflation Supply-Side 1995. Jorge. Roldos, Inflations Hyper-and Modern a Setting Wage Staggered 1979. B. Taylor, 387393. 8, Economy, Advance Finance: Inflationary Spending Government 1989. A. Carlos Vegh, 197221. 39: Monet. Plans, Credible Effects Real Initial The Exchange-Rate-BasedInflation 1997. Martin. Uribe, 2954. Press, MIT Cambridge: B.Taylor,eds. John M.Solowand Policy.Robert Monetary Unemployment, Inflation, Stability, Inflation forEmployment Guidelines Policy .1998.Monetary 123. 88, Polit. Contracts, Staggered Dynamics Aggregate .1980. 113. Proceed.69,pp.108 Model, A Stabilization: Temporary 2001. Francisco. Venegas-Martinez, 629695. 39, Overview, Analytical Inflation:An High .1992.Stopping 657677. 36, Pap. Staff IMF Approach, Finance Philadelphia. Bank Reserve Fed. 9326, paper work. Seigniorage, of Appropriation Hazard Moral and Hyperinflations 1993. Carlos. Zarazaga, 307. 277 58, Econometrica Sunspots, Believe to Learning 1990. Michael. Woodford, 350364. 76, Rev. Amer. Monarchy, Hapsburg Dismembered the in Hyperinflation Terminating 1986. Elmus. Wicker, 14291449. pp. 25, Control Dynam. Econ. J. Analysis, Cash-inMacro Public Stochastic

represented because possibly end, difficult seemed These 1530 rate an as defined inflation annum per percent 50 than rates reducing many 1980s, 1970s period Following 10 Introduction Dornbusch Rudi high. too be feared were digit single moving costs removed, been had distortions major which equilibrium economy after soon topic After through examined 1993, January Review Economic published paper, Our 1990. World left policymakers clear became it IMF, I Burton David Consequently phenomenon. about more learn anxious were particularly economies, inflationsincluding experiencing present to asked a at inflations on 1 economies. studies case Fischer Dornbuschconclusions around built is paper 1997. June IMF Hungary Bank National by organized they together Taken paper. section concluding experiences fromthese drawn lessons main eight The range. the stuck getting without inflation high from stabilizing succeeded and transition continued with inflation; moderate ended that each: countries five of groups four into categorized They 10.2. table in summarized are cases twenty political worked arrived number conference

down came case 2000. double-digit decades, three nearly range been Colombia, striking, Perhaps inflation. suffer annum per percent 1112 around or have Mexiconow Israel, Rica, Costa InflationColombia, Moderate Continued experiencing Four inflations. undergoing 1996still thenin ten experiences subsequent look briefly me let lessons, revisit Rather help. occur, when shocks favorable advantage taking factors, structural attention combined reasonable application soperseverance doing formula magic there overcome be can argue Fischer Stanley instituted Ecuador desperation, January In increased. instability macroeconomic economydiminished tocontrol ability governments 2000, 1996 between year each rising way, other went Ecuador, category fell country fifth therapy. shock attempt an policies, anti-inflationary sustained than more little within vanquished had Impressively, 2001. by digit reached all Polandhad and Moldova, Latvia, Hungary, 1996Estonia, suffering as 10.2 table listed economies transition five The 2003. digits single expected but years, two over for rates high at continued undervalued, heavily was rate exchange initial Because board. a disappeared; not But quickly. rather inflations their ended those Most it. about concerned then were most besets longer no 1996, intractable so seemed which inflation, Thus helped. 1990s late decline global doubt No economies. market become out setting I problem, inflation moderate disappearance virtual Given 10. chapter described problem inflows capital with deal essence in has surplus, account current large its of because which, Russia, them Among end. want they that inflationrates withmoderate struggling are still countries is It volume. the from paper this omit to whether result currency decade few considered

says argument economy political because included 10 Chapter Introduction a recurring allow pressures see could we potent, still costless relatively more I environment. 1 Appendix 1. Note inflation. low back go want they them) all be will it (and later decide countries to useful prove may reoccurs, nonetheless inflation moderate phenomenon if routeand inflationary acceptance prevent help would paper this studied experiences that 1998. Hungary, Bank National IMF D.C.: Economies,Washington, Transition of Experience The Inflation: Moderate (eds.) Szapary Gyorgi and Cottarelli Carlo publication, available but here reproduced not is cases, twenty in developments economic details provides which Experiences, Country on Notes Background paper, original the little slow-growth hope

percent 1530 remains rate they studied (1993) rates. single-digit rates double-digit) (low difficulty great Many Stanley Burton David Inflations 10 Moderate Ending a examiningincluding also while difficult them make continue such permit mechanisms analyzed years. least at 19 shows 10.1 table episode an definition easing Slightly percent. 30 above marginally rose it 1991) (1977 years two except 1996 1973 range was where has half-century past Hungary; Colombia decade inflations persistent most The previously not Zimbabwe) Tanzania, Kenya, Honduras, 5(Haiti, Only 10.1). (table 19901996 period over Fischer, by defined as 13 been have There inflation. high moved Brazil time, that At levels. low reducing succeeded experienced had four last from suffering were three first which Spainof Korea, Ireland, Indonesia, Brazil, Mexico, Colombia, countriesChile, eight studies presented then They 1950s.1 cases some but 1960s, back going generally 1990 or 1989 ending Statistics,with Financial International IMFs in countries 131 for data inflation basis inflation, episodes 55 listed Fischer Dornbusch inflations. moderate how question the on focus and results their update we paper, this In them. end to needed policies studiesthe case of year number

Kenya years) more or three (Episodes after1 During before Period Country years Two Number inflation Period-average 19901996 inflation, moderate Episodes 10.1 Table Fischer Stanley and Burton David Leone Sierra 37.4 21.7 199396 Zimbabwe 30.8 25.3 23.5 Colombia 199093 Honduras 34.0 19.7 25.0 4 199194 199092 Greece Other 11.6 19.6 5 199296 Hungary 12.7 18.6 23.2 199193 of Islamic 3 199496 Myanmar 40.6 Algeria Africa episodes) 26.1 Burundi 32.2 24.8 22.9 Rep. African 21.9 199394 Lesotho 54.2 24.9 Malawi 10.7 17.4 Tanzania 59.0 21.2 24.2 199495 China Asia 34.8 199192 Nepal (1) 8.3 20.6 Rica Costa Hemisphere Western 7.9 16.4 20.4 199596 . 21.3 199293 2 199091 Suriname 9.4 22.0 93.6 23.9 12.1 84.1 32.7 29.8 49.7 5.5 9.8 32.3 13.6 31.6 15.0 26.9 7.6 28.8 12.3 !2.2 14.1 13.2 12.2 29.7 10.2 10.5 8.5 11.7 32.6 5,215.2 4.0 Ecuador Paraguay Iran, (Two-year Central Ghana Haiti Nicaragua

Estonia Countries after1 During before Period Country Two Period-average (continued) 10.1 Table Inflations Moderate Ending 26.0 26.9 199596 . 23.9 defined episode an table, this Note: Statistics. Financial International IMF, 2 Percent Spells Spell Length percent. 30 consecutive least 7 19 two) than less (if years number represents parentheses Number 1. 100.0 6.3 12.5 21.9 59.4 spectacularfashion single-digitrange, Chile Brazil studies, case presented Fischer Dornbusch eight group China). (including transition place took these Five years. two for percent 30 15 which between 17 episodes respectively. 23.5, 30.2 1996 1995 during Moldovas 2. computed. average without rate high a back now is digits, declined then 1990 Mexico, inflation; experience to continued Colombia only group, Of range. period Israelwith as casessuch some and, difficulty great with often range, below it reducing have time at from suffering were that countries Other digits. single reaching succeeded yet not has 1990, range moderate in was where Rica, Costa addition, In 1995. since stabilization and devaluation following inflation the of 68.3 72.5 558.9 35.1 3 4 very prolonged result Latvia Moldova2 Poland Source: 5 32 Total

1 Appendix available developments summarizing notes (Background section. final summarized process factors different roles about conclusions main stuck.2 range reached rates; economies continue; inflations; ended 10.2: table listed categories, four grouped are The experiences. these lessons draw to attempting paper, this examined studies case country 20 on information background data present third economic discuss briefly very second inflations. problem analyzing emphasis deserve elements singling Fischer, by out set framework theoretical review we section, first In inflations stabilizing succeeded transition some including economies, other Yet range. single-digit safely yet not Slovenia Peru Croatia Brazil Argentina Poland Moldova Latvia Hungary Estonia Mexico Israel Ecuador Rica Costa Colombia Paraguay Kenya Iceland Egypt Chile stuck getting without high from Stabilized with countries Transition Continued moderate Ended studied Countries 10.2 Table Stanley David 330 a into persistent theories classified Dornbusch Framework Analytic (1998).) Fischer Burton suc cannot equilibrium (which attempt an or as either interpreted be may inflation for motive which in inflation, theory game models seigniorage among included They inflation. ending costs the emphasize that those and revenue government of source

2 amounted studied several inflation, weight little relatively placed They rate. natural drive surprise use ceed) Inflations Moderate Ending takes typically both ignored, suggest cases these least, At revenues. total percent 10 1 revenues raise effort subsidize appears countries, instance, For government. provide may benefits other include broadened should seigniorage notion Furthermore, markets. capital developed especially problematic, been deficits budget financing more GDP points certainly economies many Experience economy.4 inflationary they though even accounts, thegovernment explicitly appear might government direction at supplied credits Or, sector.3 financial powerful present Fischer Dornbusch end, costly too it because continues according approach discussing In budget. recognized not is credit subsidized provision for motive equationpresents pricing manipulation, some With model. curve-cum-markup-pricing-based process: disinflation about ofthinking way p where .1. "p"1..c; "a..e "p"1...1 .a.w w rate, e wages, change c depreciation, 0 turn: element each take We inputs). imported labor costs over prices markup as interpreted also (which shock productivity or supply adverse an a announcementof unemployment creating without could credible, announcements policymakers and expected on based are wages that extent Alternatively, unemployment. higher reductions force trade-off Phillips using by is, policythat macroeconomic restrictive through lagged below reduced be can wage of rate has inflation moderate which situation the in But inflation. reduce to designed major politically credit-creation simple useful .p"1 The policy

low. ments announce policymakers credibility time, some continued Fischer Stanley Burton David finding behavior. leverage no get will implicitlydisinflation explicitly inflation past indexed inertia. for importance shows policy. incomes through possibly exist, itdoes indexation backward ending 0 stabilizations. possibility suggests route lagged below falls played often shock.Favorable asupply c,represents term, last either seem make may attempts. failures led sometimes have shocks supply adverse disinflations, role If inevitable. not they but present, indeed tendencies adisinflation.Those inevitable areal or increase set are wages if credible fully pre-announced from gains possible points rate. inflation as extent same reduced can depreciation change wage both manner, looking a instantly, decelerate rarely inflations given Nonetheless, approach coordinated and determinants scissors, blade other obvious: state necessary probably However, inflationary side cost on equation one only represents (1) Equation Right Fundamentals Getting Demand: Aggregate disinflation. speed help use able economies transition typically it timeas over appreciating real equilibrium which in countries means also It stabilization. exchange-rate-based of start at depreciated overshould that argument behind reasoning This process. stabilization the during appreciation an by accompanied be to likely is anchor rate exchange method The useful disinflation forwardfixed

down bringing succeed device any pegs, de-indexation, policy, incomes amount particular, determining important less no demand, aggregate dynamics Inflations Moderate Ending growth money budget fundamentals if period inertia, presence In Inflows Capital Problem equilibrium. generally disinflate trying from suffer credibility, gains countrys As parity. nominal implied higher using country exacerbated likely level. unsustainable view markets what push appreciation create tends which problem, peg, allowing large, already countries, many as If, known. well problem by posed decline. slow inflation when peg rate exchange an long too sticking consequences adverse potentially stabilization dilemmas one rate. revaluation rates interest lower both operate possible make because approach preferred This policy. prescription classic The process. disinflation hinder pressures inflationary leads inflow continuation But growth. export-led with consistent not are exporters disincentives provide or sustainable; appears than deficit account current is inflows Sterilization solutions. other seek will fiscal tighten difficult politically it find governments currency. appreciated a absent but, period, never that countries some However, time. over of tightening continued need lead often regulations such circumvent incentives but periods, short for effective be also system banking the in deposits external-inflow-based short-term against requirements reserve special instance, inflowsfor capital discourage to measures Market-based nonsustainable. therefore and expensive increasingly become may correction, policy fundamental sustained low-inflation fixed crawling real larger more

suggested often is It periods. long quite over effect good controls used Chile, account, liberalized fully Stanley Burton David facing anchor using such fundamentals, investments long-term reflect capital extent To investors. uncertainty increase its widen should problem inflow then peg, exchange rates interest domestic high by offered bet one-way from benefiting money, hot short-term are if appreciation. toan likely will lead even inflows reduce inflow, on return rate dollar about could,byincreasinguncertainty band but shocks, supply adverse (1) equation interpreted could changes Such contributed energy, particularly services, goods underpriced hitherto raising inflexibility, wage downward presence 1996). Wyplosz, Halpern 1996; Offerdal, Mecagni, Coorey, (see economies transition especially process inflationary been has element changes, price relative explicitly does Adjustments Price Relative regarded accurately more may refer which However, models. class defined) (broadly belonging as discuss Fischer Dornbusch Institutions Credibility account. into taken be would prices raise failure consequences budgetary model they because end, too inflation categories: two a at output maintain attempts governments attribute lines, Barro-Gordon but, seigniorage explicit include not do some In inflation. end costly it make can that curve Phillips expectational with along motive credi thus and expectations sector private for role important an have all inflation of various The category. too-costly-to-end to belong models theory game cases, these in rate; natural the above country broadening depreciation. fuller blend level

disinflation: pursuing consider factors key following points discussion This inflation.5 promises will independence) bank central (such changes direction point these All low one equilibria, dual models Some announcements. bility Inflations Moderate Ending with tent consis policies macroeconomic underlying equilibrium; government benefits as defined broadly seigniorage, need costs; wages pointing inertia, inflationary sources policy incomes inflation; attempt peg; an possibility rate exchange behavior problem; inflow capital 0 adjustments; price relative role return we section, this conclude To policy. economic macro credibility increase measures institutional out happen does motive according theories categorization Fischers implied a include They (1994). discussed extensively are inflation ended. be eventually inflations such granted take they rather, inflations; moderate discuss explicitly not do Fischer Dornbusch Inflation Costs The source. that coming pressures resist or reduce serves continuation its what understand try should policymakers inflation, end seeking In continues. it where country each in purpose economy political some serving is It sky. blue costs These inflation. regulations laws other tax index to failure arise distortionarycoststhat including and money, for curve demand under area the by represented those from starting costs, allocative of low-inflation indexation coordinated possible clear variety

cumbersome mechanisms both attractive, less pervasive alternative end seek enough reason These range.6 if GDP points percentage several amount could costs inflation; from suffering present all Stanley David lead distortions includes already economy operating indexation types some because resources 8 rate annual an locates (1996) Sarel inflation. including is, range, remains long as continuing find studies Most located. where question low exists significant statistically agreement general also Thereis disagreement There studies. many subject between The rates. manageable more reduce programs stabilization implement had subsequently Both levels. high very rose Israel hyperinflation, succumbed later Brazil inflation, usingindexationtoreducethecosts successful most been have thought were 1970s economies two Of costs.7 social with equilibrium, imply taken often (1995) Easterly Bruno however, a at be well may break percent 40 than higher when stronger much relationship negative rather suggests work their reading 1 Appendix summarized based, paper which countries study case 20 in process inflationary on information summarize section, this Studies Case growth.8 bad are digit doubleweight growth of rates double-digit) (low moderate maintaining view the support evidence no there conclusion Our growth. good is double-digit that thinking for reasons presented has else anyone nor they Neither rate. inflation lessons features common out draw to attempt we doing, so In (1998). Fischer and Burton burden worse percent. year; careful lower

rapidly fell then 1993 46 range rose while gradual, years; three within digits single declined Iceland, widely: varied process 10.3).9 (table percent 1997 five sofor inflations, end possible it studies case established point most Inflation Ended That Countries appendix. figures shown are 20 Annual experience. Inflations Moderate Ending 1 less amounted revenues seigniorage direct 1985, high very Egypt Seigniorage surpluses Paraguay. Iceland emerged reduction pattern clear but 19851997 period over reduced decisively deficit budget government recent strong reasonably least at has each situation fiscal GDP. sector modern bill wage low relatively may basket. price products agricultural weight heavy result It inflations. experienced that African several present evident variability greater percent. 10 below well remained underlying prices; food on drought effects reflecting percent, 15 back moved 12-month 1997, early Indeed, four than variable more far rates monthly annual both seated, deepbeen have appear not does group. other different be to appears Kenya years. 12 past above being years two last average with countries, disinflation cost growth obvious no is There 1995. The 10.4). table (see countries these mix policy in part important played also management rate Exchange Egypt. Chile marked particularly which rate, exchange effective real appreciation an by accompanied was inflation moderate from stabilization the Paraguay, and Kenya, Egypt, Chile, In countries. group this for GDP of

. (1990 balance balance1 M1 period average dollarGDP U.S. -vis effectivea` ofgovernmentaccountiorage2 RealAnnualEnd visRealNominal GeneralCurrentSeignratesCPI Exchange GDP of Percent change percent Annual ation infl moderate ended that countries in performance Macroeconomic 10.3 Table 22.7 26.4 30.7 1985 Chile change) (percent 40.7 17.4 19.5 5.6 63.3 136.9 25.2 21.5 19.9 115.6 0.9 22.4 14.7 13.7 107.1 17.5 21.4 17.0 9.9 1989 11.7 100.8 3.5 22.6 27.3 26.0 3.3 1990 9.0 103.2 0.7 29.7 15.5 11.0 1992 14.5 102.8 0.8 0.3 44.3 18.7 21.7 7.3 1991 100.0 0.6 12.2 12.7 6.3 1993 3.8 108.7 1.1 2.2 20.6 8.9 1994 11.5 110.9 119.6 0.2 23.5 8.2 8.5 1995 113.2 0.4 2.8 11.8 6.6 7.4 5.8 1996 3 Egypt 3.9 123.8 0.5 17.7 11.4 16.9 4.8 4.6 28.0 25.1 4.2 1986 143.9 6.1 2.5 13.5 14.2 4.0 1987 138.4 2.0 10.2 21.9 20.2 3.0 1988 129.9 " Fischer Stanley and Burton David 0.0 97.0 2.3 8 6 4 5 2 0 1 100) .7 .0 .8 .2 .6 .5 2.8 3.7 7.1 0.1 9.9 7.9 .4 8.1 4.3

28.5 21.2 2.4 Inflations Moderate Ending 17.0 19.5 2.1 23.8 103.4 1.1 10.8 21.1 0.3 78.8 20.2 9.3 102.5 96.6 8.9 9.7 9.0 2.9 102.0 16.8 12.0 9.4 3.2 117.0 8.4 13.1 4.2 121.2 3.1 6.7 5.4 5.0 120.0 4 Iceland 0.0 128.3 33.7 35.9 31.7 3.3 42.2 13.6 21.9 6.2 31.0 98.2 97.9 0.6 40.4 24.3 17.7 8.6 105.8 1988 16.6 20.6 25.8 27.6 25.2 20.8 0.2 1989 11.2 110.8 0.7 35.8 7.2 15.5 1990 32.6 101.1 7.5 6.8 1991 2.2 100.0 1992 102.4 0.4 13.8 4.0 102.8 4.7 4.1 0.9 1993 10.5 0.5 1.6 1994 17.5 95.3 2.0 1.7 1.2 1995 3.5 89.4 0.1 1.9 89.0 11.1 2.6 2.3 5.7 1996 5 Kenya 2.8 89.3 0.8 10.2 13.0 4.3 35.6 6.0 4.8 7.1 1986 14.0 142.9 1.0 124.8 2.5 8.0 8.3 7.6 5.9 1987 ! 1.4 115.5 1.5 8 2 3 0 7 1 6 1985 8.4 2.5 5.2 .8 .1 .7 .9 .5 .6 .0 .3 .2 .4

(1990 balance balance1 M1 period average dollarGDP U.S. -vis effectivea` ofgovernmentaccountiorage2 RealAnnualEnd visRealNominal GeneralCurrentSeignratesCPI Exchange GDP of Percent change percent Annual (continued) 10.3 Table 11.2 6.2 change) (percent 13.0 12.9 4.7 7.9 110.5 0.2 27.2 20.6 15.6 15.9 108.8 1.2 15.0 14.4 19.8 1.4 11.4 1.6 20.0 98.0 1.3 47.1 37.4 29.5 27.4 52.1 45.8 1993 17.1 102.6 12.6 6.6 28.8 2.7 1994 80.0 89.4 5.1 112.2 2.8 0.9 3.8 6.7 1.5 4.9 1995 111.1 3.9 13.9 11.0 9.0 4.2 1996 . 6 Paraguay 11.1 30.8 23.1 3.5 0.3 27.7 24.1 31.8 1986 52.6 151.8 0.7 42.5 32.0 21.8 4.3 1987 10.6 152.9 25.2 16.9 23.0 6.4 1988 62.2 123.0 3.4 1.0 28.6 11.8 24.9 2.5 1991 16.4 100.0 2.1 0.8 3.7 30.3 44.1 38.2 1990 92.0 97.6 3.0 0.4 3.1 46.7 28.5 26.0 5.8 1989 0.0 127.5 2.3 28.4 17.8 15.5 1.8 1992 7.8 113.2 2.6 " Fischer Stanley and Burton David 13.2 109.6 3.3 1 3 4 8 9 7 5 0 2 100) 1985 108.6 .8 .6 .3 .4 .9 .7 .1 .0 .5 .2

19.7 20.4 4.1 1993 1.2 32.3 18.3 20.6 1994 16.3 110.1 0.7 21.0 10.5 13.4 4.2 1995 9.6 112.9 2.6 ! 0.8 2.2 8.2 9.8 1.5 1996 3.1 113.8 2.0 ( this mode changes various central4.bank reserves deposit because revenue seigniorage Icelands indicator poor is 3. unremunerated. bank central at deposits projections; 97 1996/ data years; Data 2. GDP. nominal money reserve difference rst thefi as ned Defi 1. Chile. in governments municipal Excludes estimates. staff Statistics,and Financial International IMF, authorities; National Sources: 4.7 118.8 0.4 Inflations Moderate Ending 6. reserves. of remuneration for adjusted not Seigniorage 5. years. scal annualfi on based are balances account current government General 1980s. the over indexation) and interest 1ncluding 4 3 i .5 .1 .0

anSupportingNot as changeUsed Little Iceland intervention. sterilized withstabilization. offset anchor. underpinnednominal large asrole. ofadjustmentthroughout scalPeggedSupportingEpisodes Majorfi Egypt generallydirectedtowardreducinginflation. Policy ation. reduceexpenditures. todomestichelp occasions control1990s. severalto on ciated 1980s. ratesthroughoutlate interest appresinceband realLargesurplus Targets rule; BudgetReal Chile Inflation Moderate Reduced That Countries Other adjustment Indexation inflows rate pricepolicy FiscalExchangeMonetaryCapitalIncomesRelative process ationary in factors other policy countries: Selected 10.4 Table rateindexed. andexchange financialinstruments, Wages, bankfinancingcurtailed. central positionduringstabilization; role. infiscalanchor. cantfactor. a nationalagreements. moderationthrough Wage Fischer Stanley Burton David inflationaryprocess. factorin Exogenousshocksimportant ows. Controls tradeinfluencedinflationaryprocess. termsof to shocks ows; infl oncapital basedcontrols pricenonand Priceasignificantfactor. Not signifi factor.

capitalNot inErratic Primary SubstantialFlexible; Kenya inSignificantTighteningNot Budget Paraguay raiseeconomicgrowth. externalliberalization, then. includingsince deficittimes. low Reforms, atfactor. intervention rate. stabilizing 1993; crisis factors. acant tosterilizedmarket externaldirected ing signifi maizeshocks timessubstantialin at policies followtradement liberalizationterms inflows; financialdisinflation. adjustandfiscal PriceWeather inNot role lookingMinor in1995 reduction depreof surplusrate recentshocks, factor 96. a1995 indexation inwage tofactor incontributed orreduction Colombia ation Infl Persistent with Countries inflation. lowerfactor. helped important1995. an 1990s. inagriculture, 1995inflation inthroughoutciation especially years. pactNot lookingSocial SupportingImportantBackwardband, limitedinflation1995 1995 factor. major policya monetary ows. infl ofby rate innounced entrenchedloosening indexationintroduced affectingwage affectedfactor role; preansomewith wageNot cantInformal bySignifi exchangeHampered andReal Unstable Costa account. expectations. currenteffectiveness. crawl. Not in a privaterate and public sterilized. inflows. taxweakfiscaland value-added infactor. partiallyindexation deficitfactor; fiscal rule. relativelyrate Inflations Moderate Ending toelectoralcycle. deteriorationslinked 1995. sectors. inposition; 9 majorBackwardmajorExogenousbalance majorCrawling majorDeeplyfactor; majorIncrease Rica 6.

owsIndexationNot toLarge ExpansionaryNominalTightened Israel Other adjustment Indexation inflows policy rate pricepolicy FiscalExchangeMonetaryCapitalIncomesRelative (continued) 10.4 Table a Not by counteraffected pricesinflation. tofood inintervention reduction sterilizedimmigration; band. hinderedcrawling by1994 affected inertia. 1994; asin later inpeg, pricesstarting housing contributedfactor. 1994. inflationstarting asfight first policyanchor: fiscal inflexible changes policyfor AdministeredFiscal role. Secondary reasonGenerallyStronglyMinor Ecuador securitysituation. factor majorImportant forInflows tool asMain factorUsed Major Mexico 94. 1993 shocks. infactor. anchor aexogenous times at policy. anfiscal as partially byinflation. increasesaffected byprice pact, flexible1995 influenced1994; factor. minor owsindexation, outfl in1990s; inflation endthrough stabilization; increasessector. replacedprice which 1987. to earlyprior in anchorreducingfactor initialnominal bankingbehind Fischer Stanley Burton David declined. ationPlan. Convertibilityas competitiveness. stabilization. illegal. ratesrestored. interest toin toimproveyears prior ments madeprices. fallconfidencecontracts and twozation toover reforms adjustandprice wages asaustraldenominatedsector capital remonetipublicCorrectiveStructuralstrengthenedrole; on ofFreeze ofIndexation ows SupportingRefl board. positionCurrency Fiscal Argentina Rapidly Inflation High Reduced That Countries performance. ation. ationinfl infl controllingin changessince. inlater important crisis. triggered u S A 9 majorWages inflows. sedinfluenced ocial dministeredWeak 6.

a toNot 1993Applies cantAbolished SupportingSignifi policyAnchor Fiscal Croatia account. ofmisalignments. unit new tions priceweakened. relative pricesfixed. transacfinancial policy. fiscal avoidsubsequentlypolicy. Publicto andperiod. prices, andwages, stancemonetarymonetary contractdesignedfiscal onbetweendenominatingduring burden accountstabilization; xedunit byremainfi increasingimbalancestabilization currency. ofnew intime toand wages tocurrency, prior byeliminated ofplacedexacerbated atintroduction pricessurplus newnation effectivelyintroduction tion stanceinflows; denomioperationalfollowingfiscal FollowingPrior indexainSubstantialBackward roleLoosening SmallAnchor Brazil introduced times. effect 1994. reflectingindexed. thetimes, of much anchorfor budgetused with controls cantCapital sinceSignifi highlySignificant atEconomy anchorSubstantial Main Mostlyflexible; Restrained, Slovenia accommodated. sectorsequentlyeliminated. public dollarized. subofzation highlyfinancing economy inflation. forin problem remonetidomestictial reform; surgeand acausing as viewed forrates; need liberalizationwith stabilization, noteliminated. indexation intereststerilized. real in ation. ofsubstantialstabilization, start at settingized lookingwage increasepartiallybackwardinitial apprecitoreal withprior supported liberalintially intervention ation, hyperinfl sharpintervention, Initialwith ed. Stabilizationadjustmentunifi substangovernmentPrices WithDirect ows; infl Large role, alsoAnchor SubstantialFloating; Peru stabilization. beforebudget. role. ofimportant ratefinancing exchange enterprises todomesticpolicy. ownedindexed implicitlyavoidingmonetarystateandfactor. governmentsector. state affectingin factor torole. pricesgeared Inflations Moderate Ending independence. monetary sincedifferential. balance interest1995. large time. period. short overallfor majorMost

board. deficitCurrency Low Estonia Economies Transition Other adjustment Indexation inflows policy rate pricepolicy FiscalExchangeMonetaryCapitalIncomesRelative (continued) 10.4 Table PrimarilyNot crawling1995 to loosened, statefactor. wagewages informal disinflation adjustmentsrole. firsthoc ofImportantfactor: noRestriction factor; adSupportingHinderedMinor from ImportantShift Hungary currencyboard. supportedaccommodative. mainNot GenerallyInitiallyInitially, Latvia tightened. anchorimportant as enterprisesthenband indexation. 1994 ationfactor peggedanti-infl floating; inrestrained crisis Banking Major affectednot StabilizationNot FiscalInitiallyflexible, Moldova policies. andfinancial demandfactor. money sinceinstrument. anchor a Not A Poland financing. bank1995. sincecentral onstability reliance 1995. rateuntil inexchange reduction 1994. toparticularlydrought given forweight bycrucial affected based, increasedmoney leveladjustmentbut byrole replaced Importantweakfiscalpeg factor, wageImportant facto SupportingImportantDe role: Fischer Stanley and Burton David disinflation. policy. onmonetaryhamperedinflation. 1990seffect early 1990s. factor. independenthamperedimportant of band. incrawling position earlyfactor. in indexationparticularly 9 e majoras majorNot significantImportantPrice relativelyAnchor 6. 5 videncefactor

served Inflations Moderate Ending indexation wage backward-looking Egypt, insignificant widespread Indexation rate. real at directed ratemanagement Kenya; except inall anchor, or peg, disinflation facilitate well may absence their factor,10 been have appear price relative major elsewhere. not Iceland, Incomes Paraguay. without disinflated apparently among specialattention deserves case Chilean level. following while range moderate from down its bring enabled focus It declining. kept ensure monetary but policy, aggregatedemandpolicy, actively nominal target true, partially clear, makes 10.1 appendix description detailed more As anchor. were Inflows stabilize. trying policymakers matters complicate can clearly group indexation. pervasive presence rule, controls, capital used also large. inflows defense sole be cannot generally expensive approach this intervention, sterilized rely managed Egypt While Egypt. Chile so particularly four Paraguay, Kenya. prices agricultural example, for countries, several process inflationary role played Exogenous pressure both positions fiscal Strong inflows. cope band appreciations band, as prices, food a harvest, little surprisingly was There growth. money deficit budget fundamentals changes significant only The inflation. frommoderate stabilization aftertheir before countries five these variables macroeconomic behavior summarizes 10.5 Table accommodated. freely too are shocks negative when happens what illustrates 1980s 1970s experience Icelands appreciation. through including shocks, exogenous favorable on capitalize to important is it that show examples These disinflation. with and policy rate exchange managing helped 1994 trade of terms the improvement an Chile, In 1995. inflation reducing in factor problem widening fall result good

. (1990 1.5 1.8 !3.0 !4.6 Current !0.3 !4.0 GDP) (ratio balance Government 11.8 24.4 M1 8.1 period) (end 7.5 21.0 average) 3.8 4.0 Real stabilization After Before averages) (period ended that performance Macroeconomic 10.5 Table Fischer Stanley Burton David averaged revenue Seigniorage year. increase begun it although over small was deficit budget decade. half first crisis debt years during especially Colombia, strong growth countries, other with comparison In recently. more 20 about 1980s end at percent 30 below just from reducing success There contrary. intention declared governments despite ingrained deeply continuing expectation decade, third its into Colombias country. moderate-inflation quintessential seen increasingly is by, goes time As time. some inflation double-digit low fighting been have others inflation, moderate episodes year threeexperienced having as 10.1 table defined Ecuador Only countries. group this up make Israel Mexicoplus Ecuador, Rica, Costa countriesColombia, American Latin Four Moderate withContinued Countries Nontransition slightly. improved account current average, on not did effective real seigniorage. change Paraguay. Kenya, Iceland, Egypt, Chile, are countries The Note: estimates. staff Statistics,and Financial International IMF, authorities; National Sources: 2.4 20.2 change) (percent rate exchange Nominal 111.9 111.2 2 but years, 12 last the most for 1 than less declined has inertial. essentially be to seems therefore Colombia in Inflation 10.7). and 10.6 (tables GDP of 100)

operated Colombia synchronized. are contracts Labor previous linked increase years second years, two cover typically which contracts, labor indexation expectations stems inertia Inflations Moderate Ending introduced It 1967. system peg 1994, band crawling 14 shifted 1990, substantially effective real finds. major prospects economic countrys implications return rates dollar high based short-term both band, appreciated rate exchange 1996, much recently: increasedmore They liberalization. financial decade, early scale asignificant began inflows Capital differentials. expected basis set crawl 5 A GDP. neighbors its many better That inflation. fighting for pressure reduced doubt no good Colombias end, exercised inflation, low moving gradually goal had Although 1993. since capital on imposed restrictions combined especially choice, right with living that accept easier it must time reflecting Colombia, than more evaluation. this changing likely most is Brazil, superior well Chile, Argentina performance Improved record. played shocks, external part responding changes, Fiscal 1994. sharply increased growth money budget cemented, not achievement 1993, single-digit reaching succeeded Rica Costa widely. fluctuated also has deficit account current The years. some large been revenues seigniorage spending, related electionaccommodation because varied have policies monetary fiscal Both cycle. electoral a as 100 close rose then but 19851987, was Ecuador. process inflationary in role 1994 from range moderate the into inflation brought These stabilize. to made were efforts renewed when 1992, through percent 5060 about at stayed Inflation earthquake. an and movements price oil adverse by driven changes policy of formal width variety long four-year significant result

vis-a` RealNominal GeneralCurrentSeignratesCPI Exchange GDP of Percent change percent Annual ation infl moderate continued with countries in performance Macroeconomic 10.6 Table U. effectivevis ofgovernmentaccountiorage2 . (1990 balance balance1 M1 period average dollarGDP 10.7 22.5 1985 Colombia change) (percent 43.5 20.9 18.9 41.2 183.5 30.3 24.0 36.5 136.8 1.5 25.7 28.2 28.1 4.1 24.9 122.0 1.9 26.1 25.9 117.6 33.8 32.4 29.1 4.3 27.9 113.4 1.7 31.7 26.8 30.4 2.0 1991 31.3 1.6 1.4 44.3 25.1 27.0 4.0 1992 26.0 27.7 23.0 22.6 1993 19.9 112.0 3.1 1.8 27.4 23.4 23.8 5.8 1994 13.7 118.4 132.7 23.1 19.5 21.0 5.4 1995 23.3 21.3 20.2 1996 8.0 134.5 0.9 3 Rica Costa 13.6 144.0 0.4 12.7 10.9 15.0 0.7 37.7 15.4 11.8 5.5 1986 13.3 116.4 3.2 0.8 16.4 16.8 4.8 1987 11.0 107.3 2.8 36.6 25.3 3.4 1988 12.1 102.9 0.0 8.4 10.0 16.5 5.6 1989 20.8 96.6 2.5 4.4 27.3 19.0 3.6 1990 7.5 101.9 2.1 " Fischer Stanley and Burton David 12.4 100.0 R 1 5 2 4 7 0 S. 100) ealAnnualEnd .2 .7 .0 .6 .5 .1 .3 .4 .8 .9

30.2 25.3 28.7 351 Inflations Moderate Ending 35.4 17.0 21.8 7.7 33.7 92.7 8.5 9.0 9.8 9.9 98.1 3.0 27.7 13.5 4.5 5.7 101.0 22.6 23.2 2.5 99.7 14.4 6.9 13.8 18.7 23.0 3.2 11.2 203.9 1.5 1.0 28.0 Ecuador 15.6 102.2 76.5 164.2 1.8 32.3 32.5 29.5 53.8 85.7 58.2 10.5 38.8 126.3 2.1 38.1 54.2 75.7 0.2 76.9 94.8 0.6 51.7 48.4 74.5 109.7 47.0 49.0 48.8 5.0 45.9 2.4 44.5 60.2 54.6 36.3 106.2 1.9 49.4 31.0 45.0 1993 46.6 106.5 0.4 35.6 25.4 27.3 4.4 1994 25.1 124.3 1.6 12.7 22.7 22.9 2.3 1995 14.5 132.0 0.7 35.5 25.5 24.3 2.0 1996 16.7 129.5 49.5 16.1 1987 26.2 94.7 4.9 3.8 112.8 19.7 48.2 1986 302.0 97.1 4.8 245.7 185.2 304.6 4.0 1985 Israel 24.4 128.8 1.1 11.3 16.4 16.3 3.6 1988 7.2 92.4 3.9 44.4 20.7 20.2 1989 101.4 1.3 30.6 17.6 17.2 6.1 1990 19.9 102.4 1.7 2.8 13.7 18.0 19.0 6.3 1991 5.2 100.0 2.2 ! 32.0 9.4 11.9 6.6 1992 13.0 101.6 1.2 7.9 99.2 0.9 0.3 8.1 9 6 1 2 5 4 0 3 1.9 .6 .2 .3 .0 .9 .8 .5 .4 .7

vis-a` RealNominal GeneralCurrentSeignratesCPI Exchange GDP Percent change percent Annual (continued) Table U. effectivevis ofgovernmentaccountiorage2 . (1990 balance balance1 M1 period average dollarGDP 27.9 10.9 3.5 change) (percent 7.7 14.4 12.3 6.8 98.1 3.3 8.1 10.0 6.4 99.1 10.6 11.3 4.4 0.0 99.9 49.5 63.7 57.7 1985 Mexico 6.0 105.5 2.2 1986 53.1 113.8 1.8 67.2 105.7 86.2 129.7 159.2 131.8 1.7 1987 138.2 79.5 3.4 58.1 51.7 114.2 1.3 1988 125.3 73.3 3.0 2.9 40.7 19.7 20.0 1989 64.9 90.7 1.4 60.3 29.9 26.7 1990 97.5 0.4 118.3 18.8 22.7 4.2 1991 14.3 100.0 1.0 1.6 15.1 11.9 15.5 3.6 1992 7.3 109.8 0.9 17.7 8.0 9.8 2.0 1993 2.5 118.8 3.8 7.1 4.5 1994 127.7 0.3 1995 8.3 122.8 0.1 7.0 52.0 35.0 39.6 27.7 34.4 5.1 1996 90.2 82.0 0.5 " Fischer Stanley and Burton David 352 3. reserves. remunerated adjustments include not does Seigniorage 2. GDP. nominal over money reserve of difference rst thefi as ned Defi Rica. Costa for ficit de1. government Central estimates. staff Statistics,and Financial International IMF, authorities; National Sources: 18.4 92.6 0.7 R 1 3 2 4 5 7 6 0 S. 100) ealAnnualEnd 2.9 5.0 1.6 .3 .7 .8 .0 .2 .6 .1 .5

so did although anchor, relied generally Ecuador above rise caused instabilityhas recent 1996, Inflations Moderate Ending percent 15 than less dropped 1985 down came instability. political also they when beenincluding have changes price relative important, incomes Neither 19931994. start 1992 originally 1985, since type some an used Israel range. single-digit into dropping occasionally percent, 1015 fluctuated mostly Inflation process. low growth wage keep helped supply aggregate increased immigration major both propelled Growth period recently asfor well end expansion However, system. parameters ifconsistentwith possible which targeting, placed emphasis Increasing time. over increased, width reduced, gradually crawl The band. As target. band reconcile difficult more it made process, peace about sterilize band, point appreciated most at been not but 1980s, half first triple-digit light surprising appear may inflation. few are that perception public inertia, inflationary contributed certainly Indexation indexed. highly tax system, financial pervasive is important,indexation remains indexation Wage maneuver. room banks limited increasingly bank, central and treasury between strategy on disagreement context and, costs significant had has sterilization This growth. rapid prevent scale a by assisted digits triple this stabilization 1991; to 1989 from range moderate in inflation Mexicos stabilizing.11 cost output much there was nor recession; sustained of A tightening. fiscal Pactoan with 1994, through policy monetary for anchor the as served system rate exchange peg time year fixed timeconfidence result, massive crawling

vis-a` RealNominal GeneralCurrentSeignratesCPI Exchange GDP Percent change percent Annual countries ation infl moderateof performance Macroeconomic 10.7 Table U. effectivevis ofgovernmentaccountiorage (1990 balance M1 period average dollarGDP 20.7 21.4 23.5 3.9 Ended That change) (percent 30.2 17.8 20.6 32.2 134.7 2.3 23.7 16.3 5.9 5.7 126.0 2.1 17.0 19.0 14.3 116.3 22.2 23.3 19.6 1989 6.2 109.3 26.6 21.3 23.0 2.8 1990 34.7 102.8 1.5 22.5 15.6 18.9 1991 24.6 100.0 1.2 27.8 15.7 15.2 1992 29.2 102.6 15.4 19.9 18.0 1993 7.5 105.2 18.6 9.3 14.4 3.4 1994 25.2 104.5 1.7 0.0 12.5 8.1 6.3 1995 109.8 1.8 110.7 1.6 0.2 9.2 6.8 6.9 4.4 1996 68.8 61.3 85.9 2.9 1985 Inflation Moderate Continued with Countries 4.5 . 56.0 37.8 37.6 3.0 1986 84.2 48.5 49.6 44.3 2.6 1987 57.7 116.5 37.1 41.5 47.5 4.6 1988 41.7 103.4 2.2 " Fischer Stanley and Burton David 37.2 100.2 2.0 R 7 1 0 5 3 4 2 S. 100) 113.8 143.0 ealAnnualEnd .1 .2 .8 .0 .3 .6 .7 .5 .9 .4

31.0 26.1 31.7 2.9 1989 36.2 31.3 4.3 1990 105.0 1.6 48.2 27.6 29.9 4.0 1991 100.0 1.2 34.2 26.2 5.1 23.3 102.6 26.3 16.5 19.6 3.8 1993 17.4 106.9 20.4 18.0 16.8 5.2 1994 12.1 113.9 1.9 11.8 25.0 22.4 2.2 1995 7.5 117.3 21.2 19.8 21.6 1.1 1996 25.9 109.5 1992 Inflation with Countries Transition 15.6 114.6 673.0 0.8 193.5 209.2 5.0 40.6 46.9 93.0 122.0 2.8 24.7 28.1 1.8 16.3 21.8 1.0 ! . a for 10.2 table See Note: estimates. staff Statistics,and Financial International IMF, authorities; National Sources: 8.9 Inflations Moderate Ending groups. three in countries the of 0 1 2 4 3 7 list 124.1 128.5 8.0 .4 .6 .1 .3 7.2 .5 .2 .8 .9

laborplaying business, government, among agreement Fischer Stanley Burton David after period, during mounting deficit large support However, digits. single fell 1993, through continuing discipline,12 Withsustained role forces market before situation correct materialize, do they if flows, short-term financed especially avoided, should largecurrent simplest: hereonly emphasize we experience, difficult learned lessons many While 1994. end place took devaluation famous shocks, adverse flexibility wage remarkable both by helped rapid, flexible, target, official There decade start disinflation Mexicos issue, moderate viewpoint From correction. plans be appear rumblings, occasional Despite range. gradually move intend policy. formal no plan, economic budget annual formulating sector private consulted has government Although performance. fiscal strong inflation single-digit achieve will track, on stays process If without rapidly disinflate possible it wages, from pressure little there when 19951996, economy depressed profoundly reflection. for cause gives disinflations Mexican second first between contrast The system. summarizing. worth is experience their group, economies largest are Israel, Colombia, anchor. rather a experienced Colombia solution. easy found inflows, capital major with deal to had these Each disinflation. important was Mexico anchor of use effort, this fully succeeded none although and, inflation, against fight element essential incomes used Israel stabilization, 1985 its In with. comfortable were authorities than larger been times at have countries three all in deficits account current and anchor, an as rate exchange the using while appreciation real central series disorderly very different monetary pegged substantial

tried 1990s; Mexican first role played Pacto important; become since policy, Ending without pact presence liberalization by caused countries. group this within pattern differences significant thus There percent. 10 less 12-month months, In Poland. than faster similar, even are five experiences recent Colombia. such moderate-inflation classic like more looks 1996, level whose Hungary, 10.8). 10.7 (tables 1996 percent 20 rapidly triple-digit where Poland, Moldova, Latvia, Estonia, for similar very seem patterns disinflation The Inflations Moderate with Economies Transition Mexico crisis contributed operations quasifiscal years, few last reduction inflation task complicated Israel easing fiscal 1990s, countries all reasonable policy Fiscal Israel. Colombia both important is Indexation success. deal further decline slow relatively then after digits double declined rubles. overhang followed Poland Inflation sectors. goods nontraded traded between growth productivity differential effect Balassa-Samuelson (3) prices13;and administered adjustment, price domestic (2) economy; and policies development future about uncertainty attributed be could which value, equilibrium medium-term relative currency undervaluation initial (1) experience not did it earlier, effort reform its started Hungary Because work. at forces same reflecting stabilization, of years particularly path, a moved Estonia While 1990s. early burst inflationary as countries, three these Thus, stability. rate exchange maintain seeks that float managed undeclared an operating been increasingly has but floating, formally was Moldova 1994. in only SDR the to pegged Latvia board, social great large result major

 inflation, moderate with countries transition in performance Macroeconomic 10.8 Table vis-a` RealNominal GeneralCurrentSeignratesCPI Exchange GDP of Percent change percent Annual U. effectivevis ofgovernmentaccountiorage1 (1990 balance M1 period average dollarGDP Estonia change) (percent 55.8 1,069.3 83.1 37.9 89.0 74.6 10.0 1.4 1.3 20.9 41.6 47.7 85.4 29.8 26.5 28.9 31.5 23.1 3.1 1985 Hungary 5.0 108.1 2.2 0.2 19.3 11.2 5.4 5.3 1986 4.3 114.6 4.0 103.1 15.1 10.9 8.6 4.1 1987 1988 2.5 93.1 14.8 15.7 25.8 18.1 1989 7.3 95.2 1990 17.2 96.4 1991 7.0 100.0 8.0 0.7 2.0 26.4 34.6 29.0 16.9 34.2 1992 18.2 111.6 11.0 0.8 31.0 24.7 23.0 1993 5.7 120.9 3.0 0.9 10.4 21.1 22.5 9.5 21.2 18.8 2.9 1994 16.4 132.1 3.7 28.3 28.2 1.5 1995 14.4 131.1 3.4 19.8 23.6 1.0 1996 19.5 " . Fischer Stanley and Burton David 21.5 R 8 2 1 3 0 6 7 9 5 4 S. 100) 125.8 128.0 5.2 ealAnnualEnd .9 1.6 1.8 0.4 .4 .2 .8 1.9 .1 .3 .6 .5 .7 .0

Latvia 951.2 1.8 34.9 109.1 86.6 5.3 19.9 26.3 35.9 2.2 98.2 3.4 23.1 25.1 0.4 2.5 19.0 13.2 18.8 2.8 Moldova 97.9 1.5 540.3 2,198.4 1,276.0 9.3 287.9 836.0 788.5 4.4 112.9 116.0 329.6 115.0 76.5 23.8 30.2 100.0 18.3 23.5 15.1 5.1 1985 Poland 2.4 97.6 0.9 17.8 4.2 1986 29.9 25.2 2.0 1987 19.1 60.2 4.1 1988 51.2 253.7 639.6 245.4 0.2 1989 62.4 1990 234.3 1.1 401.1 225.9 600.0 1991 560.1 14.4 60.3 76.4 . 38.8 44.4 45.3 2.6 1992 11.3 31.3 37.7 36.9 3.8 1993 28.8 166.0 1.9 39.7 29.4 33.2 1994 32.9 178.6 36.4 21.9 28.1 7.0 1995 25.4 180.2 1.7 2.3 31.8 18.7 19.8 6.0 1996 6.7 194.7 3.1 3.3 ! 359 Inflations Moderate Ending 1. GDP. nominal over money reserve of difference rst thefi as ned Defi estimates. staff Statistics,and Financial International IMF, authorities; National Sources: 11.2 211.0 1.6 4 3 5 8 7 6 0 2 1 0.6 20.4 201.7 158.2 25.9 115.1 51.3 105.1 118.8 155.7 6.3 5.0 6.1 7.1 .5 .3 9.1 6.2 1.7 1.2 2.9 .4 .8 1.6 .2 .6 .9 .7 .1 .0

by accompanied stabilization Moldovan initial whereas years, deficits budget small hadvery Latvia Estonia policy. monetary element essential type Poland, Fischer Stanley Burton David became this (but problem from significantly suffered them none Moldova, two role played policies incomes nor Neither years. economies large quite Seigniorage tightening. largely Moldova Latvia, Estonia, Disinflation Estonia). 1997 need beyond system, inertia forces strong absence testify three these declines rapid recent place. adjustments price relative allowing right fundamentals macroeconomic getting way only out, ruled inflation, contributed Baltic argued It overvaluation. signs any for vigilant be will it Nevertheless, rate. there but arithmetic, about doubt There domestic through was take at rapidly, appreciated real whether issue well inflows, problematic encouraged would within place took flows capital speculative accompanying because relevant, necessarily is band their introduce authorities led that 1995 spring appreciation Russian experience side. either on arguments decisive no see We appreciating. nominal exports, terms operated Both respects. several nontransition those like more are Poland extent, some and, Hungary experiences The regime. a and regime rate exchange peg A inflation. moderate countries other as policydilemmas same confronting process problem, inflow index facto de expectations; inflation entrenched with deal to had have policymakers Hungary, factor important an been not has indexation wage While process. disinflation furthered country each in position fiscal the of big major question steady cost floating crawling tightening

ation Inflations Moderate Ending also were system by activities Quasi-fiscal group. several for slowed seigniorage on reliance positions Weak nontransition than be likely situation begins, after soon economies, difficult deficits financing bond domestic because indeed, elsewhere; economies five has stance fiscal Last, 1995. balance external stabilization achieve helping central discipline wage Hungary, In proceeded. privatization as out phased generally enterprises applied it although group, this most efforts an policy Incomes economies. features common are These wagegrowth. control hard makeit which enterprises, privatized newly some even governance corporate weak sector enterprise state size large relatively still Another Hungary changes price relative is however, inflation, with transition nonbetween difference important An Poland. process inflationary element experienced systemLatvia problems reflected later countries, reform stages early 1990s However, inflation. subsequently stuck get appeared Mexico, Israel, Bolivia, including 1990s, late mid-to triple-digit successfully Stuck Getting Inflation High Stabilized That Countries systems. their restructure had these all crisis, banking a shows Croatia, rapid especially was disinflation The 10.9). (table range moderate long remaining without single-digit inflation rates high very from Slovenia) (Argentina, stabilized countries recently only Slovenia Peru, Brazil, while digits, single low in operating been have Croatia and Argentina years, two last For stabilizers. 1980s the of that to similar more significant feature major number pattern

vis-a` RealNominal GeneralCurrentSeignratesCPI Exchange GDP of Percent change percent Annual inflation high from stabilized that countries in performance Macroeconomic 10.9 Table U. effectivevis ofgovernmentaccountiorage2 . (1990 balance balance1 M1 period average dollarGDP Argentina3 change) (percent 583.6 385.4 628.6 89.7 81.9 92.2 7.1 789.6 91.0 7.7 113.6 174.8 130.6 2.5 56.7 90.8 1.8 127.4 84.1 2.8 351.5 387.8 342.5 1989 308.2 77.3 5.1 4,987.7 4,923.3 3,193.4 1990 4,736.7 67.8 11.2 887.6 1,343.9 2,314.9 174.4 84.0 171.7 10.5 1991 1,051.8 100.0 4.7 48.8 17.5 24.9 10.3 1992 95.6 136.6 2.3 0.9 31.0 7.4 10.6 6.3 1993 154.7 1.4 13.5 3.9 4.1 8.5 1994 0.8 172.1 1.5 1995 169.7 0.4 0.5 1.6 3.4 18.5 0.2 4.4 1996 0.1 160.6 334.3 248.6 227.0 7.9 1985 Brazil 0.0 160.3 330.1 63.5 145.2 7.6 1986 235.5 68.1 2.7 215.4 432.3 229.7 3.6 1987 120.2 63.9 4.2 " 401.0 1,006.4 682.3 0.3 1988 187.3 64.0 8.1 Fischer Stanley and Burton David 568.2 69.5 4.0 1.3 R 6 7 1 3 2 5 0 4 S. 100) ealAnnualEnd 5.8 .2 .7 .4 .0 .9 .3 .6 .1 .5 .8

1,337.0 1,759.2 1,287.0 3.3 Inflations Moderate Ending 981.6 86.0 10.2 2,333.6 1,657.7 2,937.8 429.4 493.8 440.8 0.3 2,310.1 495.3 79.2 7.1 981.8 1,156.4 998.7 2,017.8 2,828.7 2,169.2 1,009.9 72.4 9.1 0.5 2,098.7 1,258.6 2,695.1 6.2 1,859.9 81.9 10.5 31.2 25.9 82.6 1,887.7 97.6 9.6 43.5 110.7 22.2 11.3 4 Croatia 9.5 1,122.6 1,516.6 . 85.6 0.9 24.6 4.6 1.6 2.5 67.6 98.1 1.5 111.9 2.4 97.5 1.1 37.9 3.7 3.5 4.7 251.6 158.3 163.4 1985 Peru 3.9 98.9 0.1 102.6 62.9 77.9 10.0 1986 216.6 41.4 9.9 137.0 114.5 85.8 8.4 1987 27.1 46.2 4.2 1988 20.7 52.4 5.8 491.5 1,722.1 667.0 1989 665.2 47.6 7.9 1,805.7 2,775.3 3,398.6 1990 1,969.5 76.0 7.2 4,627.4 7,649.7 7,481.8 124.6 139.2 409.5 2.9 1991 6,947.0 100.0 6.5 1992 311.2 119.7 1.3 71.3 56.7 73.5 48.1 39.5 48.6 6.4 1993 61.3 123.5 1.0 57.7 15.4 23.7 13.1 1994 59.6 115.2 0.6 23.6 10.3 11.1 7.0 1995 10.4 122.9 0.8 18.0 11.8 11.5 2.8 1996 2.7 123.0 0.7 ! 8.9 125.7 0.2 9 6 8 3 1 2 7 0 5 18.2 112.2 2.8 .9 .0 1.7 .4 .5 .6 .3 .1 .7 .2 .8

vis-a` RealNominal GeneralCurrentSeignratesCPI Exchange GDP Percent change percent Annual (continued) 10.9 Table U. effectivevis ofgovernmentaccountiorage2 (1990 balance balance1 M1 period average dollarGDP 1992 Slovenia change) (percent . 7.4 136.0 88.2 202.6 43.5 18.3 19.8 5.3 1994 39.3 82.3 1.0 1.5 41.0 22.9 31.9 2.8 1993 194.8 25.8 8.6 12.6 3.9 13.7 93.1 1.6 3.8 " 100.0 0.9 Fischer Stanley Burton David level. price reserves, remuneration adjusted money, fi de4. Croatia Seigniorage base. monetary from3.the excluded were so and remunerated be to began Argentina Bank the at deposits banks onward, 1995 February From 2. GDP. nominal over money reserve of difference rst thefi as ned Defi Peru. in item nancing afi considered is privatization Argentina; for ficit de1. government Central estimates. staff Statistics,and Financial International IMF, authorities; National Sources: 14.2 94.2 0.6 0.3 14.4 8.8 9.7 3.1 1996 R 5 0 8 S. 100) 91.3 ealAnnualEnd .5 .03 .2 .0

( inflation performance Macroeconomic 10.10 Table Inflations Moderate Ending . (1990 effective 2.02 6.5 !2.6 !1.6 account Current !0.2 !1.2 GDP) (ratio balance Government 182.3 1,112.0 M1 102.5 1,456.2 period) (end 223.4 1,369.7 average) (period Inflation 4.5 0.3 GDP Real stabilization1 After Before averages) inflation, high from stabilized that higher. slightly moving 1995 percent 10 about registering Slovenia Peru inflationinflation range single-digit into moved Croatia. 2. Slovenia. Croatia Excludes 1. estimates. staff Statistics,and Financial International IMF, authorities; National Sources: 154.7 1,227.5 change) (percent exchange Nominal 115.8 74.0 been has there 10.10, table seen be can As after increased actually where except countries, all limits Maastricht within remains deficit budget stabilization.14 well came involved. tightening for stepextraordinary taking Argentina Brazil, Argentina, strategy tothe wascentral anchor rate Anominalexchange 10.10). (table following levels normal more declined stabilizations average on large very Seigniorage stabilization. since countries these situation fiscal improvement instituting countryof a introduction before numeraire as serve essentially contracts: labor structure existing by implied inertia inflationary unraveling in skillful particularly disinflation Brazilian The peso. and dollar U.S. both circulation permitting while board mark prices most indexation implicit with mark, deutsche against fixed soon but program, stabilization of start at float allowed currency Croatia, In dollar. the to tied then was which currency, period 100) major significant new

disinflation, its most During stability. price helping Fischer Stanley Burton David 19941995, anchor rate use rate, weakened Because rate. exchange afloating with amoney-based undertook Peru front. gains made which about bring help used but stabilization, Brazil pervasive Wage program. credibility initial hence, and, sustained could low ensuring crucial These Peru. those especially inflation, several elements critical were slow policies fiscal lax causes underlying tackled reforms structural Wide-ranging 1995. introduced direction. opposite pressure effect tequila times at inflows significant both face too, Peru, effect. tequila by caused outflows against successfully) (and hard battle 1995 while rapid periods experienced group other place. controls inflow authorities though even inflows, capital attracted rates interest real High demand. aggregate control monetary on placed weight This 10.10). (table than after higher significantly was growth rather, cost; output no Slovenia. except 1994 since countries factor important an been not policy Incomes instantaneous. virtually disinflationprovided further can suggest cases Croatian Brazilian However, indexation. discourage tried all have Croatia Brazil, Argentina, stabilized. it before Argentina did as indexation, widespread had has Slovenia disinflation. indexation growing and shortening their particularly hyperinflation, during contracts structure breakdown countries. moderate-inflation limited quite be inflation high from stabilizations these lessons stabilizations. such result a of disorganization The easier.15 ways some in makes currency, well. reasonably functioning still economy the when gather to harder is that stabilization for support political build also may floating period heavy coordinated common foreign hyperinflation

made We 10.10). stuck getting without 10.5) (table moderate-inflation is, range, below reduced has which paper studied categories two obvious not They studied. extensively disinflation Disinflation Growth output. terms cost at lower, press able were they hyperinflation, scourge ending generated support political using by But range. reached its victory declared undoubtedly could group this Each process. prematurely stopping point probably lesson, one If Inflations Ending note do However, any. if disinflation, costs output or ratio sacrifice study perseverance ofapproach, Regardless anchor. an used stabilizers Nonetheless, effective. strategies rate exchange monetary various formula: magic single no there but beaten, be can Moderate (1) importantconclusions: most outthe set useful it proceeded, as studies case lessons drawing been we Although Lessons Overall sample. excluded stabilized have countries high-inflation when stronger much The 10.9. 10.8, 10.6, 10.3, tables presented 19851996, countries, 20 sample in inflation between correlation negative A (2) success. to only with consistent position seigniorage reliance a is thegovernmentdebtburdenifitis programs. success sustained credibility for critical are growth low discipline fiscal weak causes underlying the on take that reforms Structural (3) inflations. high and moderate from stabilization successful of element careful significant key strong small reduction

lower both tightening Fiscal intervention. ineffective possibly costly appreciate, allowing policy, relaxing tightening, among choices uncomfortable policymakers confront Capital (4) Fischer Stanley Burton David intervention, sterilized some involve most will response appropriate addition, In depreciation. intervention Sterilized increasing). demand money that believe reason (if accommodation monetary possibly, and, flexibility, rate exchange causing by future problems up store however, scale, imposing debt short-term emergence andthe againstsignificantovervaluation guard constantly must stabilization, exchange-rate-based under especially Policymakers, (6) inflation. adverse effects resist shocks exogenous favorable capitalize important It (5) circumvented. likely they time But maturity extending particularly term, short effective may inflows controls Price-based inflows. capital problem exacerbate policy relaxation any Certainly, bank. central bill interest with deal way surest The stabilization. framework destroy crisis external an lead can circumstances such because deficit, through deficit account current reduce a played has Relative (7) policy. fiscal 2 12-month figures, following shown years 12 past over 20 rates Annual Data Inflation Appendix: either. stabilizations disinflation cost output evident little there growth, good clearly high from Stabilization (8) course. its runs adjustment price relative as overvaluation for alert on countries even necessary is it but economies, these expected be to are appreciations Real economies. transition process inflationary the in role 1996. and 1950 between inflation moderate of episodes 64 lists 10.11 Table degree buildup heavy large real years.

Ghana after2 During before2 Period Country years Number Three inflation Period-average 195019961 inflation, moderate Episodes 10.11 Table Inflations Moderate Ending Kenya 81.9 Seychelles 21.7 Leone Sierra 13.9 20.6 23.9 198587 Africa Sudan 14.0 17.0 12.7 21.8 Swaziland 36.7 25.2 Tanzania 11.8 199193 34.0 27.2 197275 of Rep. Dem. Congo, 27.5 25.3 197678 Zambia 66.0 22.4 199396 Zimbabwe 18.3 23.5 Korea 197981 14.3 21.6 198790 Myanmar 4.3 199496 28.7 21.4 . 21.9 197375 198183 Samoa Western 7.8 23.6 9 197987 Greece countries Industrial 18.4 199092 15.9 20.7 5 198690 Iceland 11.4 197476 Ireland 5.0 20.3 11.5 Italy 8.2 18.6 16.0 17.6 3 198082 Zealand New 11.6 6 197580 Spain 10.2 22.8 8.9 12 197485 Portugal 9.7 16.2 4 197477 Kingdom United 13.7 18.5 13.2 18.1 7.6 10.6 14.6(1) 93.1 12.9 6.3 22.5 12.0 16.6 31.0 6.7(2) 27.6 9.4 13.3 7.0 5.1(1) 15.4 14.5 48.4 7.2 14.7 13.4 8.6 South Asia Pakistan

197478 Bahrain Europe East Middle after2 During before2 Period Country years Number Three inflation Period-average (continued) 10.11 Table Fischer Stanley and Burton David 370 198691 Egypt 5.8 19.3 198083 of Rep. Islamic Iran, 11.3 19.8 198689 11.8 199193 16.8 24.5 198791 Israel 36.7 21.3 195659 Turkey 11.7 18.5 197377 1.6 19.1 196265 Argentina Hemisphere Western 71.4 19.0 198891 Bolivia 25.8 196872 Brazil 9.5 17.4 195153 Chile 23.1 20.8 196568 67.8 23.3 27.7 24.3 197376 Colombia 10.8 20.1 199296 26.7 25.4 13 197890 25.2 22.1 6 198792 Rica 198587 Ecuador 15.5 20.6 60.8 26.8 24.9 198790 Salvador 5 197781 Grenada 14.7 21.6 199093 Haiti 6.5 199496 Honduras 28.4 19.7 . 25.0 197375 198486 18.6 20.7 8 197481 Mexico 9.8 22.9 198992 75.4 21.7 195457 Paraguay 17.2 21.2 198789 8.2 22.4 4 199194 25.9 23.6 3 196971 Uruguay 11.6(2) 19.6 83.6 20.4 8.4 15.1 16.5 12.2 242.2 12.9(2) 11.5 51.5 4,013.5 45.8 14.5(1) 34.7 18.0 28.5 13.0 32.0 49.4 21.9 !0.1 17.8 8.5 10.3 7.4 110.7 73.0 29.1 96.0 Costa El Jamaica

199296 198890 Hungary transition Countries after2 During before2 Three Period Country Period-average (continued) 10.11 Table Inflations Moderate Ending . 26.5 23.2 20.6 26.7 3 Percent Spells Spell Length Statistics. Financial International IMF, 4 45.3 5 31.3 6 7 8 9 2 1013 as defined moderate episode An 1. 100.0 64 Total due are tables two differences Small country. on depending 1990 or 1989 ended that data used (1993), Fischer Dornbusch earlier an updates This percent. and between consecutive three least at define table current criteriain percent 30 to 15 the of application stringent a which for three) than less (if years numberof represents parentheses in Number 2. episode. inflation computed. is average 29 20 0 1 3.1 more moderateperiod 7.0 12.5 4.7 0.0 1.6 Source:

years. fiscal on Based 1. estimates. staff Statistics,and Financial International IMF, Sources: index). price consumer annual the in change (percent inflation moderate ended that Countries 10.1 Figure Fischer Stanley and Burton David

estimates. staff Statistics,and Financial International IMF, Sources: index). price consumer the in change percent (twelvemonth 1997 April through 1995 January inflation, moderate ended that Countries 10.2 Figure Inflations Moderate Ending

estimates. staff Statistics,and Financial International IMF, Sources: index). price consumer annual the in change (percent inflation moderate continued with Countries 10.3 Figure Fischer Stanley and Burton David

estimates. staff Statistics,and Financial International IMF, Sources: index). price consumer the in change percent (twelve-month 1997 April through 1995 January inflation, moderate continued with Countries 10.4 Figure 375 Inflations Moderate Ending

estimates. staff Statistics,and Financial International IMF, Sources: index). price consumer annual the in change (percent inflation moderate with countries Transition 10.5 Figure Fischer Stanley and Burton David

estimates. staff Statistics,and Financial International IMF, Sources: index). price consumer the in change percent (twelve-month 1997 April through 1995 January inflation, moderate with countries Transition 10.6 Figure Inflations Moderate Ending

estimates. staff Statistics,and Financial International IMF, Sources: index). price consumer annual the in change (percent inflation high from stabilized that Countries 10.7 Figure Fischer Stanley and Burton David 378

estimates. staff Statistics,and Financial International IMF, Sources: index). price consumer the in change percent (twelvemonth 1997 April through 1995 January inflation, high from stabilized that Countries 10.8 Figure Inflations Moderate Ending

experiencing accordingly countries some current according categorized 10.2 Countries 2. episodes 64 were there 1996, chapter; end appears 10.11, 10.5 Fischers Dornbusch version updated An 1. significantly. Mexico Rica Costa Inflation digits. continues Latvia range, single-digit declined Israel Kenya then, Since 1997. May through cover paper described developments The authors. those expressed Views assistance. research excellent Adams Claire comments Settlements, International Bank Icard Andre seminar, discussant our grateful are Notes Stanley Burton David present (1992) Liviatan Cukierman 5. budget. seigniorage either directly up show banks development example, by, inflationary deficit; budget measured though seigniorage, calculation appear bank central by creation credit Direct 4. policies. anti-inflationary support public extent determining sector financial role emphasizes (1995) Posen 3. 10.1. table defined episode leads imperfect create policymaker pain no There optimal. being stabilization as reputation her establish activity level devise possible generally where contracts nominal backward-looking models result contrast they stabilizer; 2 benefits estimate presented recently (1996) Feldstein 6. pain. without stabilizes problems) credibility suffer likely complicated quite one often (albeit 1 about amount GDP society for costs reduces (1989): Summers Fischer demonstrated This 7. taxation. capital on impact distortionary largely derive which, costs, large imply would analysis his rates, Extrapolating finds empirical Some 8. result. produce necessarily does curve Phillips slope affects indexation model, their costs; social higher equilibrium an lead may after digits single reduced successfully that country another Bolivia, studied also have We 9. 1996). Fischer, reviewed work (this cyclical or causal this whether clear not is it However, countries. industrial leading other States United prevailing low very even growth productivity rates between relationship negative 1985 began which inflation, moderate period a of use the involving Chiles, to similar been has years recent approach policy Bolivias levels. hyperinflationary from inflation in decline inflation. reducing at directed policies fiscal and monetary with combined rule rate exchange model gradual serious path year percent year. given strong long radical real

followed mid-1985 11. case. this role important an played said could relative prices, agricultural changes heavily rate Kenyan Because 10. Inflations Ending A 1986. beginning at up picked growth but slowdown, form States United stabilization support aid financial received Israel fact likely also It range. inflation new credibility establish need attributed probably should 1987 began rather grant billion a as particularly 1994, rise did quasi-fiscal noted 12. inflation. costs perceptions public affected 7 Review,Vol. Inflation, Moderate 1993, Rudiger, Dornbusch, (September),pp.439458. Review,Vol.6 World Stabilizations, Gradual Optimal Dynamics 1992, Liviatan, Nissan Alex, Cukierman, 96/138 Adjustment, Relative Implications Economies: Programs Disinflation Designing Offerdal, Erik Mecagni, Mauro Sharmini, Coorey, Fund). Monetary International Paper133 Occasional Union,IMF Soviet Former Countries Other Russia, Baltics, Issues Experiences Policy eds., Lahiri, K. Ashok A., Daniel Citrin, Hungary). Bank IMF (Washington: ry Szapa G. Cottarelli C. Economies,ed.by Transition Experience The Inflation: Inflations, Moderate Ending 1998, Fischer, Stanley David, Burton, 5209 Growth, Long-Run Crises Inflation 1995, Easterly, William Michael, Bruno, References inflations. country industrial (1982) paper famous Sargents applicability discussions frequently course was comment 15. debt. interest real only includes is, deficit; operational for are data deficit fiscal Brazilian 14. economies. transition many made be had have that adjustments typical is This ninefold. than more administered fivefold; prices nontraded nonadministered, threefold; rose goods traded price April 1992 July between 10.1, appendix Estonia on note the in described As 13. banks. development by lending Research). Economic Bureau National Massachusetts: (Cambridge, 5469 No. Paper Working NBER Stability, Price to Inflation Low from Going of Benefits and Costs The 1996, Martin, Feldstein, short recession US$1.5 loan result ( January),pp.144.

Stability: Achieving Stability? Price Long-Run Pursuing Banks Are Why ,1996, University Cambridge (NewYork: others Capie F. England,ed.by the Symposium Tercentenary Banking: Future Banking, Central Modern 1994, Stanley, Fischer, Fischer Stanley Burton David Credibility: Disinflationary Independence Central 1995, Adam, Posen, (Washington:International 99 Occasional Growth,IMF Sustained Achieve Strategy The Mexico: 1992, eds., Kalter, Eliot L., Claudio Loser, years. various (Washington), Statistics Financial 96/125 Economies, Transition Rates Exchange 1996,Equilibrium Wyplosz, Charles Laszlo,and Halpern, 387. 382 Proceedings,Vol.79(May), Papers Review, American Inflation? with Live to Learn Governments Should 1989, Summers, Lawrence ,and City). Kansas Missouri: City, (Kansas A Poland: Moderate Griffiths, Mark Thierry, Pujol, York). (New York New Bank Reserve Federal 1, No. Report Link? Press). Chicago (Chicago:Universityof Hall R. by Effects,ed. and Causes Inflation: in Inflations, Big Four Ends The 1982, Thomas, Sargent, 199215. pp. (March), 43 Vol. Fund, Papers, Staff Growth, Economic on Inflation of Effects Nonlinear 1996, Michael, Sarel, Fund). Monetary International (Washington: 96/57 Paper Working IMF Story, Missing Real

It inflation policymaking world real initiation describes Recollections, 11, Chapter 11 Introduction economists, policymakers experienced skilled other among for beginning, help trying outsiders story. side chapter This history. stabilizations successful most one out turned program comprehensive place mid-1985 until Nonetheless sustainable. large too deficits payments balance budget range, digit triple into well Inflation economy. pressed 1983 late From side. Israeli Bruno Michael Peres Shimon side, American Stein State Secretary with works when does like much acting we economy, its stabilize tells paper particular, striking. also are differences problems. macroeconomic severe from suffering implementing without accepted, Israel disappointed be say us allow he But conditionality. formal impose want not did Shultz George reasons, good For stabilization. support assistance financial U.S. provision on put desire my Steins Herb about (not grant billion $1.5 plan, I later times Many provide. willing was Congress a emphasized has years recent In out. carried were conditions agreed ensure sufficed have would disappointment IMF that implemented willingly and sense, economic making as government accepted least at locally, designed part being of sense in country, the by owned it if succeed to likely more is privileged worked country story stabilization loan) wished

cabinet Israelis, by designed entirely almost program, an For ownership. importance confirm appears success The country. Fischer Stanley ownership understand need But debate. tough lesson key another illustrates which more, conclude me Let anecdotes. long title, befits as Recollections, him. advising were who economists Shultz State Secretary advice faith his basis on operating work, would convinced been said Peres Minister Prime then succeeded, had after time some Indeed, acceptance. its ensure helped pressure American succeed, began until accepted widely not program concept,for I economy. Israeli happening 1984, night dinner Over Stein. from one this with short, participantsin various among views policy balance and policy, monetary indexation, deficit, budget role economy, state of analysis a that question line bottom is That do? them want we do what but Well, me: asked Herb over, was it When answer. exam good choose. policies right the are those why terms comprehensible in explain also she or he answerbut to has adviser prolonged complex learned, replied lengthy very

economics, focus than Rather critical.4 execution formulation whose Bruno, Michael especially others, discussed already have aspects studied.3 are stabilizations long as redrawn drawn be continue lessons Its now.1,2 so less though elementsnovel heterodox themthe aspects, interesting very many had program Fischer Stanley Program Stabilization Role States United 11 Recollections that notes detailed reinforced been has memory stabilization. role mainly I time. together put when 1983 end began involvement formal own My Shultz. State Secretary was stabilization figure key Shultz George Israel. currenteconomicsituation reflecting by conclude will program, elements economic underemphasized two or one about talk School Sloan Dean Siegel, (Abe) Abraham Michigan; (CEA) Advisers Economic Council former McCracken, Paul consisted advisers academic four group original The economy. Israeli on him advise to economists also Stein, Herbert Shultzs;5 a myself, Institute; Enterprise American Shultzs, colleague friend longtime CEA Chairman then 19761977, MIT and 1972 in Chicago from University Hebrew atthe sabbaticals during informally originally time, some Israelfor of economy the studied Ihad MIT. at kept Professor

1980, January starting systematically Fischer Stanley resulted Israel visit That Israel.6 Research scholar discussed stabilizing Frenkel Jacob probably States, In (1982). published later Bank written around notice received conference Rochester Carnegiegroup, reluctantto initially Iwas team.7 join asked After time. reputation anti-Israel an Department because partly policymakers, entertained being plans stabilization too it!, something, do you asks when Fischer, telling his concluded Siegel Abe on time much so spent normallyhave surelywould Department, been had if even And Treasury.8 Normally countries. theeconomies deals Secretary normal thing, group. Shultzs about things odd several were there 1983 me strike did It career. future shape helped life, my experiences meaningful interesting one out turned what upfor now another, For type. I bureaucracies, inside worked active given advisers outside is unusual a visiting or government, members other either met The possible. might ways whatever advice giving economy, strengthen government help try intended he He them. at money more throwing by solved could problems that weak, be East Middle ally dependable most its economy have to States United good not it said quietly, Speaking Sheshinski. Liviatan, Nissan Berglas, Eytan late included delegation, Israeli Treasury, Director-General then Sharon, Emanuel 1984. early Washington place took which advisory meeting first opened Shultz respect. this generous especially was Israelis, talks our side U.S. headed who Wallis, Allan Affairs, Economic for Under-Secretary was. group with cooperation Departments State impressive how also and had, eventually we as policy formulation the in through meetings of seminar paper thought knew conversation joined problem realize role series

meetings. those nothing elections, because 1984. middle Stabilization Role States Recollections whenever economy: ignorance used McCracken Paul effectively how see however built often complicated, very typically they forthand problem explanation complicated aid. coming saying newspapers arrived He Minister. new Washington visited when life back came group Minister Prime Israel. States one worked which something why explain could someone perhaps economy, understand really hair, his out hayseeds pulling say, logicPaul sometimes economics laws immune economy belief Stein, meeting, it make couldnt teaching whom from period this throughout pleasure know, You said, meeting on report later called Herb there.9 deal, years, two next over aid dollars four additional Mr. well. pretty did aid, come didnt asked also he stabilization; net entrepreneurs, support fund investment dollar billion I things. other As happen. actually about dream ask things impossible some getand ask, dont if is Shimon watching learn you ( Development Economic 1984, October visit Peres of a provide JEDG policy. governments influencing succeeding not but done, needed what knew who professional Israel, people were Shultzs, George certainly almost idea, group. working officials, together Israeli, American both economists, private be would namely variation, important an there But problems. current review to numbers opposite their with meet each peoplefrom States, United Israel between Group Working Military Joint underlying that as same idea The up. set was issues. through way its think government Israeli the help turn in and them, for particularly firm had learned great guy safety ten few guess result JEDG) forum

assigned importance primarily worked 3, June on, decided program day up setting its time process important JEDG Fischer Stanley played problems, economic deal determined Affairs. Economic State Under-Secretary Wallis, Allan counterpart His negotiations. team headed Treasury, Director-General Sharon, Emanuel because extent about bring skills political technical government no-one believed economists outside Many States. channel fact it, came advice both JEDG, use understood He stabilization. role vital support explore economists, by 1985 January 1984 November Washington visits two abortive an After side. legislature administration bureaucrats politicians program, involved players from harmony occasional even notes right forth calling orchestra, conductor acted who Emanuel, one, least at were, people such many how know start pocket his pulled visit this end At Histadrut. Secretary-General academics, Bank Treasury policymakers relevant met We doing.10 what out figure try Israel, Herb sent Shultz George March, In March. work much not later, until deferred being action with prices, controls rate exchange points The economy. stabilize order take needed actions points, ten I than aggregates monetary heavier components essential they but side, fiscal on little too was there me told friends Israeli some today, be request Israels stage By 1985. of half first in side U.S. and Israelis between contacts intensive were There Aid Supplemental program. as shape taken had stabilization net a for stabilized. it when Israel to provide would States United the that grant billion considerable central dont pegging list bit might safety proposal $1.5

Shultz, permission With policy. economic matter no giving from them keep administration difficult towards disposed favorably Congress problem economy. action taken Israelis disbursed supplementary making second, stabilize, encouraging first, on, focused attention July until March, my Herbs time From Stabilization Role States United Recollections First, relationship. IsraelU.S. subtlety Israelis, pressure Congressional illustrate which stories, tell testify two Israel, visit our after April In Herb. about supposedly This Obey. David by chaired Committee, Appropriations House create youre all IMF; than worse You us looked late, came who Kemp, Jack Congressman used. happen, hoped explained We there. Washington, Embassy Attache Economic Halperin, Danny but meeting, missing replied And economy? stabilize aid how Professor, Stein turned he Then austerity. go taxes, cut is do needs What agreeing without get trying signs many there time, At government. meeting critical be going was sure were what for Israel went team U.S. before just 1985, May end at place took story second The economics. side supply Its them. give willing are money much exactly take will it Congressman, a out government Israeli been had his along All conditionality. of idea like not did Further, I nor Neither program. monitor sides both as set they actions markers, own their with try? you dont why Well, said, Boston in me called no. said aid. the on conditions impose could we if him ask to Shultz George visited Herb so and work, would approach generous this that want subcommittee secret recession. beat, program thought

finish try late staying usual, as Iwas, Fischer Stanley fit managed day Washington trip hour visit. our Boston depart supposed Department at As Secretary ready all do unless me want speech, deliver up winding right? yes. that. dont even money Because not, why threats make So out. about thought else? What else. or program, carry you say going are We awkward. Well, them can You said, conference, anniversary tenth coming Before program. out carrying without aid get they disappointed but story, tell fine be it said back wrote story. this telling mind would if ask Shultz to a carried disappointed word understand 3 place took key Wallis. Allan Jerusalem meeting JEDG delegation The 1985 June Jerusalem, Shultz. George Israelis between trust degree extraordinary an Besides, board. across needed goodwill his multidimensional, is relationship U.S.Israeli meant have must He circumstances. those under weight Modai. Finance course, including, Peres Minister Prime headed team, economic Israeli came, turn my When percent. 19.4 April rate inflation monthly things other among emphasizing presentations, strong very They Stein. Herb followed was he U.S., opened Wallis Under-Secretary conditionality. on brief its beyond go not did side U.S. confirm will Modai Mr. sure I Department, State working first, comments: general two with think had who Israel in economists excellent many there second, And Israel. friends from came made being were proposals that and Israel, for support of depth the by astonished been paper conference11 six arrived speech wont asked cant while should lot am started

do how ing Stabilization Role States United Recollections need including essentials, agreement total virtually there economists, these among differ seem might done be what views although Further, draw. could Minister whom things, other Among without succeeded has economic no moment team?and put we will Who Hebrew, said Sharon turned Peres Mr. point At execution.13 its following coherence for responsible intellectual runsthe undertake actually would government Israeli time this recall is It Program Aspects Economic that. significant less much American adopted. historical meeting, cabinet night all1, July on Minister, together intensively, worked They began. work hard appointed, was academics, outside Berglas Eytan late Bruno Michael insiders, Minister) Prime Adviser (Economic Neubach Amnon Israel), Bank Director (Research Fraenkel14 Mordecai Sharon, Emanuel team that, After stabilization 8 (about massive through mainly about brought cut GDP) acceptability political critical certainly devaluation, with associated shock price initial after immediately, inbringinginflationdownalmost part important an played elements The wages. originally prices freezing orthodox decidedly but policy, monetary tightening rate15 exchange fixing subsidies, a that thought and controls, wage-price imposed it when administration Nixon been both had Stein; Herb nor program, parts like not did Shultz thatGeorge sure Iam program. I possible. program in else everything made correction tough very alongthe go to willing they of, care taken were deficit, budget particularly fundamentals, long as But role one should Nor elements. heterodox of importance the underestimate stabilization, large devaluation.12 small knew serious percent mistake. dont

rate: pegged Fischer Stanley rate exchange pegging now, believe then, which One, underemphasized. ofthe aspects few reflectona also Iwould strategy. demand, money happen idea little very without will thing right if days Believing passed.16 going when asking kept Israelis, meeting 1984, From Law. beginning, from emphasized Shultz George time, missed element second assure done do up freed important: extremely law insistence. his understand happened what That fails. succeeds years three or next early. inflation reduced basedstabilizations Countlessexchange-rate beginning. easy stabilizations Exchange-rate point. at tested program every mention like other exporters. trouble, real those appreciation; pushing people economies some In economies. types two There afterwards. continued warfare guerilla 1987, 1986 concentrated program. success ensure devalue, cut pressures populist Bruno, Michael governor, appointed newly its between battle bound but dominate, interests export because shape better are they exaggerated Israel school predominance inflation. problem dealt rates interest lower what, matter no devaluation country this pressure unremitting The degree. by bank central independent took It Israel. of Bank for times difficult were Those given. been had he independence legal use courage governor get always you argued have (1990) Liviatan Nissan and Kiguel Miguel all. after stabilization about bring to 19881989 I However, later. comes stabilization, based exchange-rate an with just is program, a be there that inevitable was it think the in recession believed situation largely law, couldnt would big depreciation; serious remarkable tough dont stabilization-related

Rather, case. Stabilization Role States United Recollections traced can recession assumed program early made specific After exercise. budget-cutting produced domestic absorption reduction accompany supposed increase, nominal beginning, signed battle, winning when Just strikes. protests generated freeze devaluation.The associated change level price larger Histadrut, generous prevent brakes rate interest had Israel Bank rapidly. grew economy rose demand Consumer program. beginning decline wage undoing totally 1986, months three 12percent acumulative by wages real raised deal recession. eventually led That inflation. As hard pushing were Department, State advisor economic Bailey, Martin particularly team, U.S. on colleagues My reforms. importance underestimating time, atthe mistake other leastone Imade beginning. inevitable one I macroeconomist there If economists. Israeli now; be leverage; maximum its at then which side American from greater should reform pressure them, making system political resistance privatization, including Israel, need true. Thats stabilization. with do doesnt that rightly put to necessary low, high too market stock privatizing: not for given reasons privatized, has little Relatively ago. it as now much debate But continuing. liberalizationis trade markets, capital reforms some been There slowly. place taken have or happen didnt either reforms, structural stage, second it: was this program, stabilization failure a inremoving economy, inthe government of role reducing progress Similarly, later. years ten stories same hearing impressed less You impressed. very slowly going is privatization why hear you time first The forth. so and unwilling, are investors the place, in framework one-time cut result believe recurrence recessionbut good said regulatory

6 at now course, Of rapidly. structural progresswith have disappointing, after Growth slow. extremely competition, barriers non-price price variety Fischer Stanley inflation: high led ago years ten than made were arguments hear months every Israel come surprised Iam Comments Concluding rate. raise still governmentwould size reformsincluding those but reduced, has reform perceived rates, produce argument sure, To rates. lower for pressure rateand natural below unemployment rapid, growth overheating, Today hurt. cure right The rapidly lead expansion monetary through cutting conditions, large. deficit account current because needed which say tempting now. within finally Inflation range. digit single difficult much program. stabilization range 20 down easy relatively was It inflation. increasing depreciate interestrates possible it demand aggregate reduce whichwill policy, fiscal make wouldnt incease whether cut rates interest so without But contraction. fact, matter. doesnt rate percent few another argument, same there then quickly, show will contraction, with up sum me Let society. economy costly very reminded be need not should we inflationand higher get you is That up. add things these that just Its much. matter does inflation of more two or and economy, stabilizing on work us appointed Shultz George since 1984, December In story. I books, text except exercise such in involved before never a see Israeli the studying been had He economy. an stabilize how him ask to official, IMF senior percent, little devaluation, tightening small difference, true went

dont now. going it. Forget said, Role States United Recollections growing still economy but reserves, pressure percent, 500 rate true Its have They there if undertake them persuade reserves. made assistance But happen. make helped successful. extremely been it out, carried skilfully have, would economies than earlier stabilize You wrong. he very all Well, worse. much gets thecrisis until respect, In system. inflation antibodies enough leave did episode inflationary 1990, hyperinflation Argentinian or German like hyperinflation, stabilizations Unlike costless version extended is This 1. Notes easily. too came that beenrewritten, has lecture Although Program. Stabilization Anniversary 10th Conference Associations Israel given Quarterly,vol.42,no.4,Dec.1995. Economic language Hebrew appear will this 1995, June Jerusalem place conference tone. informal its retain tried taken Patinkin, Don late words beyond lecture. attend illness terminal despite managed program, interest I 6. Professor Assistant an career his started 5. program. account complete most presents (1993) 4. 1991. al,1988, et Bruno edited volumes instance For 3. Fund. Monetary International necessarily not author, those are expressed views 2. stabilization. on together worked we period during cooperation extraordinary their conversations, quote permission for both Stein, Herbert George to also grateful as 19781979 year academic spent had who Research then Fraenkel, (Meme) Mordecai invited a program stabilization role control formal over took Shultz throughout. Israeli representatives with group advisory meetings OMB, including agencies, government U.S. interested other Representatives 8. 1984. published was paper The 7. MIT. at Scholar myself. Stein Herb Department, State the from Hauser Tim and Murphy Richard Stockman, Director OMB McFarlane, Staff Chief House White Baker, Treasury of Secretary by attended 1985 March in crisis. bit. guarantee run relatively keen am Visiting meeting

between choice basic analyze written 1986), Press (MIT Inflation, Indexing, book, my later Disinflation, Targets Money versus Exchange paper, This 11. Bruno described are plans several stabilization; about thinkingbyIsraeli much had there course, Of 10. account brief own his published has (1990) Stein I. two, became gradually economists private four group original 9. 12. Israeli faced that targets money rate Sharon Emanuel 13. Stein. Herb as points same many covering I Meme 14. before. day program stabilization possible details other this discussed a operated generally have inflation high from stabilizations Successful 15. happen. would happening was what reading accurate relied be could judgment good His stabilization. during together closely Institute). Enterprise (American 1218. (MayJune), Enterprise,1 American Adviser, an Observations Economy: Israels Herbert Stein, Bank. World mimeo, Stabilization, Based Rate Exchange with Associated Cycle Business (1990). Liviatan Miguel, Kiguel, 246255. (Sept.), 114 29, (Hebrew) Quarterly, forIsrael Policy (1982).Stabilization Frenkel Jacob ,and 20,Spring. Policy,Vol. Public on Series Conference Carnegie-Rochester Israel, Economy The (1984). Aftermath.Cambridge,MA: Its Stabilization Lessons (1991). Meridor Leora Liviatan,with Nissan Helpman,and Elhanan Fischer, ,Stanley MITPress. Cambridge,MA: Stabilization. Inflation (1988). Fischer Stanley Dornbusch,and Rudiger Tella, Di ,Guido Press. Reform.Oxford:Clarendon Economic and Stabilization, Crisis, (1993). Michael Bruno, References deficit. government finance to Israel of Bank for obligation the removed law The 16. stabilizations. money-based successful been havethere economies, thetransition someof years, recent in Only rate. exchange worked fixed

12 Introduction I Vegh, Carlos Sahay, Ratna When individual available observations few very despite analysis, econometric unparalleledopportunityfor offeredan make attempting many so fact time, same At more. reforms; sequencing right privatize; how, whether, trade; prices liberalize rapidly how flexible; fixed should rate exchange range; percent 40 unless impossible instead or begin, could before necessary inflation whether gradualism; versus therapy shock abounded: Controversies economies. any begun barely growth Union, all high remained Inflation bloc. formerly thirty than more process focused institution attention 1994, September a using Nonetheless, 1992. before, three their started had Union Soviet former most old, years six only Poland chapter, this on work be us refined sufficiently not analysis methods However, agencies. international other IMF followed being approach embodied wisdom, conventional supportive broadly These reforms. too So growth. conducive stabilization macroeconomic rapid that was conclusion basic Our experience. early from conclusions some extract to able we EBRD, developed economies these in reforms structural extent indices deploying by and available, were data which for countries transition twenty-six the of joined panel

provided argued many because partly time, not were But stage. obvious seem may Indeed, experience further up stood drew conclusions broad sequencing privatization speed desirable instance discussed, then difficultquestions some answer Fischer Stanley develop industries heavy size reduce need bloc, In industrialization. context place took growth Thereafter rapid. agriculture economiesand nearly agricultural heavily far The reforms. respective began they when bloc Soviet former from very was economy Chinese structure emphasized, others (1994) Woo Sachs As liberalization. trade price particularly gradual, namely lesson, over Just enterprises. state-owned reforming problem formidable faces still China strategy, gradualist Chinas successful be turn end might restructuring approach rapid more Russias whether asking tentatively appeared now articles two or one Ironically structure. industrial modern as treated longer experience, start after been overall First, process? about say we should what back, Looking countries. development important Russia process reform revival stability attainment progress, stages different at economies transition other Reforms process. accession driven powerfully being Union European entering for candidates reforms Structural problems. structural own its with contend has each them, among similarities despite stabilization, macroeconomic achieved paper this studied twenty-six all Nearly group. a road out set of most in success, political reflects result second This away. farther those than better done large by have Europe Western to closest are countries Baltics the Second, achievement. small no is That orientation. that retain planning, central and communism on backs their turning economy, decade single remarkable market

importance 12 Chapter Introduction halting countries, than costly Third, move. country direction economic consensus recognition, economy. private appropriate recognize transition involved werenot somewho madeby dealhas Agreat transition. during protected population members vulnerable most growthand return delaying execution, one failure Rather frameworks. legal build trying lack any Nor 1991). Gelb Fischer example, (for confirm will start literature developed. framework institutional right wait or reforms structural other ahead move whether became then question key passed. were laws many areas, these offered assistance adviceanddetailedtechnical deal after Finally, separately. issue each examine need answer, general no which towards path down continues rather but lost, not answer The Russia? lost Who on developed a economy, reform. stabilization about serious become persuade shock took argue course, Of 1. Note outcome determine institutions international advisers outside for complex powerful, big, too earlier. particularly more, done times. influence some probably done, should what is That reformers. support we much as did outsiders We Russians. by largely driven reform Russian point: critical reflects that And Russia. West aid financial little relatively was there though even Thishashappened world. industrialized of rest join decision fundamental made has But stage.1 earlier an at peg rate exchange from away moved it IMF, with agreements its in out laid policies pursue to able Russia had avoided crisis 1998 and direct, more been have could process the sure, be To system. political democratic thus look great debate market basically

A system. amarket-based planned acentrally currently are or orbit 30 than More Vegh A. Carlos Sahay, Ratna Fischer, Stanley Experience Early Economies: Transition 12 Growth Stabilization such list making goal explicit not did attempts, These Gorbachev. by including times, various Union 1968, Hungary 1950s, Yugoslavia economies: among at attempts earlier course, were, There 1990. 1, January program stabilization bang big its inaugurating Poland with 1989, begun have to said can Union. Soviet former part effectively were that Europe eastern nations be will however, paper, this focus The Mozambique. Ethiopia, Angola, like African certain even China, Vietnam, Cuba, include also would privatization); (especially enterprise convertibility; account current liberalization trade liberalization; price stabilization; macroeconomic 1991): Gelb, Fischer 1990; Sachs, Lipton example, (for areas six action need emphasized generally analyses Mainstream themselves. economies efforts reform previous 1970s, late since China earlier, 1980s countries developing in structural from lessons experiencesthe related principlesand general todraw had reforms designing on advising those transformation, economic process experience direct little thus was there began, transition time At economy. for framework legal institutional development and net; safety a of creation the (including economy complete social market

moving goal Given prices. domestic affect competition international permitting reinforce would liberalization Price system). financial market-based Carlos Sahay, Ratna Fischer, Stanley 402 draws This resumption first issue. views two essentially There growth. between relationship paper focus others. among (1996), Vegh Sahay Botousharov Havrylyshyn Gelb Denizer, Reports,DeMelo, Transition 1995 1994 its (EBRD) Development Reconstruction Bankfor European through available analyses quantitative more available, become data recently, More drawn. lessons examined been have groups countries individual experiences passed, has time As gathered. wellbefore how make necessary are, optimal questions answers critical Interesting later. earlier taken areas proceed action initiate decisions time. take inherently process elements three other liberalizationfor trade price stabilization processmacroeconomic aspects certain only apply bang big practice, In gradualism.1 versus therapy shock or bang big terms cast frequently debate area. each followed strategy sequencing speed arose controversies major However, areas. these needed was reform proposition general over disagreement much could there economy, a 40 argues (1995), Easterly Bruno by work Recent 1993). Gregorio, De 1993; (Fischer, with associated negatively evidence well as for bad inflation arguments reforms keystructural growth,unless affecting adversely without range annum per percent 4050 below to reduced cannot therefore inflationintransitioneconomies and economies, market like are economies that view alternative The economies. transition of experience the on draw does it though regard, this in convincing particularly is sustained, be not will growth which beyond line priori red

6 than averaging by fueled rising, began, since uninterruptedly fallen has realGDP emerges: bleak arather profiled, group performance average When 19891994. period Mongolia experience on summarize present first paper, this In grow. economy if impossible simply month per percent 10 below much rates credit, easy access need firms because that, assert who some there good hyperinflation argues one no While implemented.2 already demonopolizationhave privatization particularly Growth Stabilization hide time,however, chronological profiles Such GDP. A time. points different at programs their started countries fact: key but suggest strongly results These positive. years two after recover begins quickly output remarkably, More control. under brought as thereafter, fall continues substantially falls stabilization,inflation year time:in rearranged when emerges picture reduction while idea with consistent is evidence raising thus effective more been regimes pegged Moreover, higher led lower that find profiles, time stabilization expected As determinants short-run main analysis econometric an conduct we typical establishing After growth. of revival disinflation, precondition bringing help may rate exchange a played have to appear also reforms Structural high from disinflation rapid proceeding. before essential are data about Warnings Mongolia. Union, Soviet former the Europe, eastern transition economies 26 for deficits fiscal inflation growth, ofGDP patterns examines section This Economies Transition Experience Recent inflation. reducing and growth reviving in role simple brighter vital

At reasons. conceptual both biased, seriously First, qualifications. sets broad two There results. reported some affect may large be well datamay dataparticularly biases emphasize case important proceed, then warnings issue using when customary while Thus, data. around intervals confidence wide put would country countries, across variables definitions differences work has with information fragmentary often Given available. become official purposes for made or authorities estimates based countries. working economists Fund) Monetary (International IMF by us provided authors, request paper, this used data Most Caveats Data Vegh Carlos Sahay, Ratna Fischer, Stanley 404 where situation hypothetical extreme imagine why, understand To feature extraordinary such increase overstate likely factors these impact combined The prices. different relative price; any available frequently differences; capture unlikely are calculations parity power purchasing even poor very typically was quality line: out began process transition before valued were goods which at prices level, there Second, prices.3 market rises prices, terms that occur easily could it Then, market. world on value zero but system, accounting national according period base price provide (1992) Sachs Berg GDP re-estimates comprehensive no Although recorded. not is share increasing rises, private declines sector As sector. state from measure up set been they exist, did systems earlier Where process. slow inevitably an services, statistical independent new build to had have Union Soviet former republics Many problem. measurement a favor They 1990. and 1989 between output Polish in decline the of analysis estimate positive serious detailed demand-based

suggests exports), net investment consumption, Economies Transition Growth Stabilization over 4.9 services) industry agriculture, shares sectoral one is, (that compared percent; 8.7 consumption power using GDP drop estimate Pohl Dobozi estimates. supply-based reliance place reports statistical economies, general, data. decline percent a Furthermore, overestimated. during ignored, simply markets black improvements quality as disguised may regime controlled previous increases Since inflation. apply related problems measurement Some countries. across variations wide half, about by reduces economy growth averagethe arethat conclusions preliminary Their consumption. electricity part large based economy, unofficial size calculations present (1995) Kaliberda Kaufmann Europe.4 higher has Union underreporting also but all virtually estimates official smaller much declines output that only argue They output. changes starting necessarily not thestartingdateofacountrys given implemented. was program date list country, each For exception. being Turkmenistan with 25 implemented plans stabilization countries, those on working economists IMF judgment In 19891994.5 period data comprehensive we which for Mongolia, Union, Soviet former Europe, eastern countries 26 lists 12.1 Table Indicators Information Basic goods. scarcity reflected better relative later than freed were prices when process transition stages initial the in greater been have is inflation mismeasurement The 1991). (Osband, upward biased be to likely are indices (Paasche) current-year and (Laspeyres) weighted base-year both liberalization, price of 12 proxy

dates. these prior regimes rate flexible Both 1994. board acurrency 1994; SDR pegged was currency Latvian The d. attempt. one more had countries These c. rates. exchange market on based dollars U.S. than higher far measures transition, during undervalued been generally have currencies As b. GDP. are ratios countries, FSU of case In countries. bloc Soviet other andnine USSR former comprising arrangement trading regional Assistancea Economic Mutual Council the for stands a. (1995). Gelb Denizer, Melo, De authorities; national estimates; staff IMF Sources: 3046 24.0 Uzbekistan 5536 24.6 Ukraine 3825 33.6 applicable started Not Turkmenistan 2730 22.1 Tajikistan 10663 4.6 Slovenia Slovak 7519 17.9 1995c April Russia 3722 3.3 1993c Romania 4941 16.5 Poland 17.3 1992c Mongolia 4596 24.8 Moldova FYR Macedonia, 6816 33.7 Lithuania 7911 31.3 Flexible/Fixedd Latvia 3244 May Kyrgyz 4666 17.8 Kazakhstan 6569 1990 March Hungary 6390 19.1 September Georgia 9078 27.2 June Estonia 9.8 1991 Republic Czech NA 5.6 Fixed 1993 October Croatia 5968 15.3 1991c February Bulgaria 7218 44.5 1994c November Belarus 4456 33.1 1995 January Azerbaijan 4923 21.3 1994 December Armenia 1386 2.3 Flexible 1992 August Albania 1988)b (US$ (1990)a adopted date program Country PPP at GDP regime Stabilization Capita total to Exchange GNP/ exports CMEA economies transition in programs stabilization conditions Initial 12.1 Table Vegh Carlos and Sahay, Ratna Fischer, Stanley 406

including announced Countries program. during indicates column third date.7 reference mid-1995) (as attempt serious most take we countries), six case (which made been attempts stabilization several When program.6 IMF Economies Transition Growth Stabilization peg, classified (FYRM)the Macedonia Republic Yugoslav casesCroatia regime.8 adopted having listed that Republic, Kyrgyz Azerbaijan particular countries, many course, Of such. it announce explicitly did authorities though even implemented, actually policies 1988, capita per estimates economy: conditions initial relate 12.1 table columns two last rate. stabilize markets foreign intervened often have regime exchange Assistance, Economic Mutual Council stands (CMEA (1995). Gelb Denizer, Melo, De from taken measures both 1990 basis provide GNP parity power purchasing orbit.) among arrangement measured variable) other any (or whether Depending used. retail short, too series available not was CPI available; (CPI) index price consumer based rate during19891994. economies 26 all performance output information provides 12.2 Table countries. reported Union Union, former for on data absence In 1990s. early collapsed arrangements trading previous their suffered bloc Soviet shock extent indicator GDP exports CMEA ratio The lower. far be would dollars, estimates, current economies; transition levels income relative estimate an measure) end-period a compared On time. over of evolution comparing studying in useful these as measures, average report common more is It variable. and high rates inflation when particularly differ, to likely are country same the within time or countries across comparisons measure), average (an period crawling fixed peg flexible pretransition

 economies, transition in performance output ation Infl 12.2 Table a highest Country since belowwasdeclinegrowth ationoutputoutputoutputwasannualfell ationMaximuminfl inwhichwhichwhichCumulativeCumulativeinfl inYear Year lowest ab 50% . c 10896.2 Armenia 19.9 39.9 236.6 Albania leveld 1788.0 Azerbaijan 5.4 66.8 59.0 1994.0 39.3 338.8 8273.5 Georgia 3.0 34.9 946.7 Estonia 2.5 21.4 52.1 Czech 1.1 36.9 1149.7 Croatia 1.4 27.4 74.6 2566.6 Kazakhstan 18.3 NA 34.6 1990 51.2 1365.6 Republic 50.6 1927.3 FYR Macedonia, 1.7 61.1 1994 1162.6 Lithuania 2.8 52.0 958.2 45.2 2198.4 60.6 325.0 295.5 1993 Romania 13.0 17.8 1991 1992 639.6 1989 Poland 2.1 22.3 Vegh Carlos and Sahay, Ratna Fischer, Stanley 408 4.8 26.4 inflationa (1989 100) Belarus Bulgaria Hungary Kyrgyz Latvia Moldova Mongolia

2510.4 Russia 48.3 61.3 7343.7 Tajikistan 6.9 16.8 246.7 Slovenia 4.8 25.1 1992 58.3 1991 Republic 9743.0 36.5 10155.0 1993 52.1 1232.8 15.6 b. December. December calculated Infl a. authorities. national estimates staff IMF Sources: 49.1 4645.6 Mongoliae FSU 32.6 619.0 Balticse Europe Eastern 40.8 2632.2 economiese A 1989 reached lowest refers level Lowest d. basis. average annual an on measured GDP output. minimum theyear taken 1994 grow, begun countries For lowest. output which year to 1989 from decline Output c. 1989. before even below because applicable, not is criterion this Hungary, case In 1994. of years, transition the during 50% above was ation infl Economies Transition in Growth and Stabilization average. Simple e. of1994. as recorded been has growth positive no that indicates Slovak Turkmenistan Ukraine Uzbekistan All dash

variables policy response aparticularperiodor within developments focus if information convey likely hand, other Vegh Carlos Sahay, Ratna Fischer, Stanley 410 A lifted. controls trade cases, and, when process, start typically maximum deflation. way all moved having Croatia with range, reduced over however, 1994, end By inflation. double-digit had Tajikistan Hungary, Slovak Republic, Czech countriesthe remaining implemented. program stabilization preceding 12 triple-digit 22 12.1, table listed Of economies. extremely been has exercises. econometric conducting values extreme documenting used end-period while inflation, path profiling measures Accordingly, period. time definition (1956) Cagans met often Inflation year. annual highest 1996). Vegh, (Sahay years previous eliminatedthe jumpsthat one-time accounted freed prices yearin during part as order, is numbers high a from range economies transition liberalization. price upon overhang monetary elimination reflected outburst hyperinflationary brief most In Georgia.9 Armenia countries, two only months four than more for rate this persisted it sample, our out 17 month exceeded Although Wars. World Second First aftermath place took Cagan studied hyperinflations classic The month. least at 50 exceeding inflation civil experienced recorded were declines largest Some amounts. reported half one about by average on decreased Union Soviet former countries that suggesting estimates withsome so, highly perhaps inaccurate, certainly are data noted, already As economies.10 26 these decline cumulative and lowest was output which year the shows 12.2 Table Georgia. 74.6 incredible almost an to Uzbekistan in percent 15.6 of short qualification hyperinflation: minimum

From Tajikistan. Azerbaijan, Georgia, Armenia, FYRM, Croatia, like embargoes, trade or war economies. all time: calendar profiles balance fiscal inflation, Growth, 12.1 Figure 411 Economies Transition Growth Stabilization Panel 12.1.11 figure summarized discussed just indicators by conveyed performance economic poor picture overall process. transition during place taking is income redistribution massive light qualified also measures significance view, point a reached year. every negative been has Measured beganuntil process transformation which year to take we 1989which measured average (unweighted) b panel real level for plot corresponding negative. remained but increased, then rate trade. CMEA collapse and Union Soviet breakup effects reflecting 1992, start since inflation story The 1994. economies 26 half than more positive growth that noted be should it data, output aggregate gloom the Despite level. initial its of percent 60 about was 1994 in GDP average, on that, welfare trough shows

1991. since markedly rising inflation equallydisturbing, c,appears process, transition Vegh Carlos Sahay, Ratna Fischer, Stanley 412 define made attempt authorities. national discussions staff IMF mainly based estimates, official GDP; than rather reported balance basis; d used. central available, not when reported; figures budget government general Also, basis. denoted time. stabilization way alternative An points different programs their countries indicates, table As looking obscured presented just data by conveyed Time Stabilization transition. during deficits fiscal large j implemented was program 1990 1990, stabilized instance, case In following or preceding time, takes 1994 as such this countries, all averaged time. variable value compute We panel graphed is one 12.2. relating example, differ. may yearin each observations number Note on. so panel, that a dramatically. picture changes 12.1 chronological from shift The observations. three least at are there which stabilization yearsin those only averages report we paper, shown profiles time purposes For 1990. started stabilizations whose Poland, and Hungary for T positive becoming average on with recovering, then but stabilization, year the until falling growth shows 12.2 figure b c Panel stabilization. after years two increase to begins GDP real levels, of terms in that, correspondingly percentage commitment, cash, cash highlights . j,where 4. 1in 4 2. those

Notes: economies. transition all time: balance Growth, Figure 413 Economies Transition Growth Stabilization d Panel inflation. mirrors roughly balances behavior thereafter.12 low remains implemented plan when sharply down comes peaks turn, inflation, text. see details, For started. program as defined by followed percent 810 stabilizationaround before deficits fiscal average large very shows and, year a represent profiles time Europe, those Union Soviet former countries between stabilization date differences systematic were there Since finances. public improvement with correlated highly appears turn in which stabilization, inflation following rebounds GDP real is 12.2 figure emerges that message The 13 improvement. continued interruption, for observations particular, In countries. of population T rather Baltics, the and Europe eastern from significant brief changing . 2and 3come

a panels group, this For group. experience poststabilization no observations, three less are there which points data show not do Since countries. groups for time presents 12.3. EEB Baltics, European includes second 12.3; referred Mongolia, Baltics) SovietUnion(excluding countries all comprises group first groups: two into sample divided we Therefore, Union. Soviet former republics other from than time. stabilization profiles balance fiscal inflation, Growth, Figure Vegh Carlos Sahay, Ratna Fischer, Stanley 414 b stabiliza up negative is Baltics and Europe eastern growth shows 12.3 figure countries, FSUM As GDP. percent 10 close deficit average an to d,albeit finances, public improvement significant bya c,helped panel shown as stabilization, year in sharply declined however, Inflation, continuously. declining been has output of level the that

subject FYRM, except all grow Indeed, stabilization. after turns Real tion. Economies Transition Stabilization . (R2 significant statistically isnegative 19921994. period during each rates (logarithmic) plot 12.4 figure detail. growth-inflation investigate efforts some report now growth. lower thus associated higher much apparent is It revives. stabilization sharply falls stabilization: follows suggest 12.3 12.2 figures profiles time Growth Inflation discern. difficult makes chart scale although then percent, 100 quickly stabilization, After lower. relatively deficits fiscal fact reflecting Union, Soviet former that levels reached economies inthese Also, countries. FSUM did it low never EEB GDP average levels, terms embargo. a existence confirms However, percent. below50 being prior years one positive recorded two only were Romania Bulgaria 1995. months six first Armenia rate at running output, recovery with simultaneously less more reduced Armenia, case began. 1994, 60 above just was Mongolia begun, has which remaining four Of Slovenia. Slovak Poland, Lithuania, Latvia, Hungary, Estonia, Republic, Czech Croatia, Albania, The year. earlier an or began, as year same percent 50 below fell annual countries, these of 10 In 12.2). table shown (as 1994 begun had output where 26 among 14 consider we First regression. found association negative to counterexamples country individual are there whether asking by relationship examine also We sample. this in countries the for growth and inflation between correlation trade 0:63),

termsis inflationbelow view support tend figures These 1995. months six around annualized economies, each sharply. its Republic, country additional growthe begun economies 15 now there systematically, more 1995 first preliminary Examining (annualized). percent 35 than less rate growing still were both 1995, half Uzbekistan. UZE: Ukraine; UKR: Turkmenistan; TKM: Tajikistan; TJK: Slovenia; SVN: Slovak SVK: Russia; RUS: Romania; ROM: Poland; POL: Mongolia; MNG: Moldova; MDA: Macedonia; MKD: Lithuania; LTU: Latvia; LVA: Kyrgyz KGZ: Kazakhstan; KAZ: Hungary; HUN: Georgia; GEO: Estonia; EST: Republic; Czech CZE: Croatia; HRV: Bulgaria; BGK: Belarus; BLR: Azerbaijan; AZE: Armenia; ARM: Albania; ALB: Notes: authorities. national estimates staff IMF Source: 19921994. average correlation, inflation-growth economies: Transition 12.4 Figure Vegh Carlos Sahay, Ratna Fischer, Stanley 416 with or year same either revived countries, these 10 percent. 50 below annual reduced 11 1994, As growing. are have countries whether question also There begin. for condition not and notes bank shortage outright an due apparently was the case, this In 1994. in growth negative but inflation low very had which Tajikistan, is exception only The years. two to one a of returned Tajikistan that show data Preliminary policy. anti-inflation necessary lag result deliberate

typically grow, began reducing succeeded Conversely, annum. percent an reduced before grow able that countries only there conclusion, period. embargoes faced still FYRM earlier, mentioned revived. yet not has but percent, 50 below annualized brought FYRMhave countriesGeorgia other mid-1995, addition, 1995. months six high Economies Transition Stabilization both being close appears stabilization therefore, countries, group For expressed rate, second variable GDP real average first regressions, sets two run We inflation. determinants examine to analysis econometric simple some use section, this In 19891994. economies transition patterns documented section Inflation Growth Determinants growth. condition sufficient (measured government balance for figures profiles. time averages annual with compared prices, end-period based inflation section; presented data growth Methodology Definitions Data 1992. January Union breakup 1991 collapse Union) Soviet former within (or trade CMEA dependence GDP, capita per level conditionssuch initial reforms; structural extent policy); fiscal (exchange policies macroeconomic considered: explanatoryvariables, As variable. dependent by captured were 12.1) table listed effects The section. previous used those as same also are GDP) a on takes which variable, value assigning procedure adopted we Lithuania), Latvia in (as 19921994 period sample during changed regime If otherwise. zero and fixed, was rate exchange the when one of lag. necessary logarithm, percentage dummy

economy planned unreformed represents where Reports), Transition 1995 1994 information on based 19891994, 1995, Gelb, (ascomputedby economic measured each structural year. months six (flexible) if (zero), Vegh Carlos Sahay, Ratna Fischer, Stanley 418 indexis This economy. reformed competition price indices: average foreign (with reform banking privatization 0.3), construct (1995) Gelb Denizer, Melo, De index, yearly basis On 0.4). first breakups by caused disruptions effects capturing ways different two experimented CLI. purposes, 19891994 over reforms depth capture (CLI) index liberalization takes which (Y92), variable a provide will GDP with associated coefficient estimated countries, underestimate an are extent Union. be used what Union, within formerly For 12.1. table presented GDP, exports ratio use second otherwise; zero 1992 year one vary intercept allowed We sample.14 25-country years annual using carried was Estimation period. pre-reform during flexible or fixed either regime rate exchange define to difficult it particular, In Albania. Union Soviet former especially 1992, before half than more exist not did simply economies market in understood commonly as policy macroeconomic that is 19891991 period excluding reason main The 19921994. years, three countries 25 all data series time and cross-section pooled we analysis, econometric out carry To used. were 1991 figures income parity power purchasing capita per estimates Bank World Finally, countries. these for trade CMEA breakup impact the of bound fully weighted weight cumulative dummy value lower

case, (in collinear become regressors included were (LCPWB91) (CMEAGDP)orinitial variable when except effects), fixed capture (to Economies Transition Growth Stabilization regime role The function. regression shifts parametric modeled variables), omitted reflecting (presumably across differences there test us enables formulation This assumed). was intercept countries experience, previous reading Based time. controversy relied Stabilizations rate. for allow tends anchor, then breakup (because exports CMEA ratio reforms market-oriented extent smaller deficit, larger lower to expected also We 1995). Easterly, 1995; (Rebelo recession than rather typically has inflation high from stabilization addition, (1996). Vegh Sahay (1994) Sachs Hansson by stressed rates exchange pegged benefits economies, transition context reduced. deficits fiscal unless sustainable stabilizations such But 1992). Vegh, 1982; (Sargent, economy remonetization did we period, time Given economy). impact predicts theory Endogenous direction. did, if nor, matter GDP whether expectation a on based regressions our since course, Of transition. during rapid more would higher case which income, with associated positively been have may management economic quality possible quite it however, run, short In run. long period subsequent over rate growth income capita per initial between relationship variables. policy key importance relative of indicative merely results exploratory as viewed be should analysis empirical preliminary, sparse are data the that given and self-evident, not cases some in is causation model, structural common subject nominal greater firm negative particular

(using significant be out turned country-specific cases, all In model. fixed from obtained output report columns three first Results Estimation Output Vegh Carlos Sahay, Ratna Fischer, Stanley 420 1 Column variables. by captured not differences some there indicating test), 2 (regressions added are variables explanatory further when However, growth. higher conducive were policy tighter regime rate exchange 3 a had Union Soviet breakup collapse CMEA that prior our confirm seem thus results significant. highly indexare cumulative and disruptions, trade effects capture intended dummy time variablesY92, additional These significance. loses variable fiscal 12.3), table observations 75 Total value 0.00382 0.00017 0.00035 0.00043 0.00000 0.00019 Probability ratio 46.53 57.00 54.61 53.98 70.00 56.61 Likelihood 0.61 0.57 0.55 0.60 0.45 Adjusted 0.73 0.71 0.72 0.75 0.64 R-squared (1.90) (!4.41) 0.69 !9.28 Y92 (!2.97) (3.54) !0.97 7.42 CLI (!1.68) (!1.96) (!2.47) (1.42) (1.48) (2.31) !0.06 !0.07 !0.09 0.30 0.53 FISCAL (!2.08) !1.84 (6) (!2.90) !2.55 (5) (!3.03) !2.72 (4) (2.00) 11.35 (3) (3.10) 15.77 (2) (3.04) 18.10 (1) FIXED Inflation Log Growth GDP Variable: Dependent parenthesis) (t-statistics 19921994 Economies, Transition 25 for Model Effects Fixed 12.3 Table spurring critical been have to appears CLI, index liberalization the reflected as reforms, market-oriented of state The 1992.15 in countries across growth on impact negative likelihood shows pegged major

exert out turns CLI index liberalization surprisingly, somewhat contrast, 5). level, 10 (atthe marginally Y92 associated negative inflation. variation country crossseries time percent 70 than more explain 4, regression together, used when and, government position measure dummy pegged was columns three last at looking finding, prominent most Our 12.3). tests ratio likelihood by indicated (as significant highly be effects country-specific regressions, Results Estimation Inflation influencing incomein dependency conditionstrade importance point faster. grew deeper undertook rates) fixed use (through macroeconomic achieved regressions declines. output income lower we 12.3, reported analysis, other In viewpoint. policy from result important an is This 3). (regression Economies Transition Growth Stabilization suffered those incomes capita per with started that 12.3) table report not do (but found also We marginally. only fit improves however, CLI, inclusion 6. column shown as inflation, on effect downward disequilibria, fiscal fundamental addressing to addition that, suggest strongly thus results The rates higher shock CMEA a been has rate exchange these place taking transformations extent Considering Union. Soviet some so growing, are countries European eastern all Macedonia, Republic Yugoslav former exception With here. studied economies transition 26 15 in revived had growth 1995, half first As Conclusions Lessons Policy transition. during process inflationary the influenced conditions initial and reforms structural Moreover, packages. stabilization inflation successful of component strong larger key

within positive return decline Vegh Carlos Sahay, Ratna Fischer, Stanley 422 as regarded years percent. should annual begin, appears Moreover, stabilizationleads stabilizationand requires suggests strongly thispaper discussedin evidence achievement. A necessary external access accompanies institutions, financial international conditionality policy forced rather, but, inherent no argued Alternatively, revived. after soon 35 declined had down way its on was these even moreover, annum; 50 less having without place taken cases striking nonetheless true, could While stabilization. sustain impossible find governments then stabilization, follow not does If follows. if only succeed stabilizations instance, For growth. connection interpretations alternative are there rates. growth raising reducing important especially seem deficits fiscal smaller rate exchange link stabilization-growth idea Thus, IMF.16 received still Slovenia, Croatia exceptions, two with programs explicit context reduced been has economies, most In itself. financing than rather growth, produces Bank IMF/World an provided assistance technical foreign benefit it would view a undertake reform want hypothesis another Yet design. reflect merely paper this doubt to us growthleads experience typically high from stabilize trouble, into get year per percent 40 exceeds in countries case their (1995)in Easterly Bruno by reported those resemble closely so economies transition for results inflation-growth fact However, dismissed. cannot design program IMF and reforms structural index between correlation The important. more be may components other the that but one, is stabilization inflation which actions, of set few major fixed variant product whole

 reported prior hypothesisbased advance do growth, promote reforms view strongly table view. support thus would high, Economies Transition Growth Stabilization 4 below rate an month per after soon revived developed least Albania, another, Europe. leading just began early Union, theformer economy into integrated deeply respects were Baltics thing, For it. doubt be, That Mongolia. those transition applicable they Europe, eastern market-oriented advanced, more happened has what reflect paper presented results argued It markets. export each depend initially economies extent reinforcing mutually be likely all efforts mind keep aspect additional An grow. failed measures structural no undertook but inflation stabilized acountry imagine could one reform,for aproclivity have stabilize governments assumes this though years, two within grow begin stabilizeinflation transition notion supporting as evidence regard also growth. sustainable condition a venture far, so with causation issue settle possible not it While program. stabilization Jeromin Stone, Mark Savastano, Miguel Russo, Massimo Rodlauer, Markus Richards, Anthony Razin, Assaf Owaki, Hiroki Murrell, Mates, Neven Lorie, Henri Lane, Krueger, Keller, Peter Kapoor, Ishan Haley, James Gelb, Denizer, Cevdet Corker, Robert Clifton, Eric Browne, Christopher Belanger, Gerard Auerbach, Alan from comments valuable received interpretation. their us helping available data making colleagues IMF our to grateful We Notes 1997. or 1996 most positive turn 1995 increase average on these growth words, other In years. few next 12.3 figure in seen pattern follow will Mongolia and Union Soviet former of countries for profile prediction The advancing. are we hypotheses the by implied is that percent necessary radical

Kornai Cohen Roland Castanheira Blanchard Aghion transition, speed analyses theoretical For Klaus see strategies; speedy favoring arguments Gelb Balcerowicz (1995), Aslund 1. Monetary International represent necessarily authors those expressed views assistance. research extremelyefficient Cheetham Ximena Gill Manzoor thankful draft. earlier suggestions helpful very extensive offered Taylor Timothy Sharma. Sunil Cashin Paul particular, and, Zettelmeyer, Vegh Carlos Sahay, Ratna Fischer, Stanley 424 stabilization. precede needs de-monopolization argue example, (1994), Braguinsky Yavlinsky Yavlinsky. Grigory propounded strongly has argument latter This 2. (1995). Coricelli Blejer policymakers interviews See strategy. reform optimal view gradualist reduce will monetary requires money theory quantity nothing one, old estimates. further presents (1995) Dobozi 4. 1994). (Fischer, period exceeded far prices year base growth when 1930s, Union Soviet happened phenomenon opposite 3. change. their prices, level affects monopolies existence counterargument familiar operation. economy reunification transitionnamely, its circumstances special because Germany East data, sufficient lack Serbia exclude 5. data. official indicated than 1992 more fell Poland output instance results, implausible several pointing method, criticizes Koen 11), p. 1995, (April Transition editor choice The analysis. purposes counting double imply independent, statistically would points data period, sample short due However, sample. included attempts all below, undertaken exercises quantitative for principle, 7. Fund. arrangement date starting coincide dates most however, practice, In 6. (1994). Woo Sachs (1993) Singh Jefferson, Gelb, begin might reader interested countries: these experience from learned be much believe do we Vietnam, Laos, Cambodia, China, excludes study While Germany. West industrialized involved attemptsnecessarily multiple been have there programwhen a later time at regimes had Lithuania Latvia 8. attempt. with associated package policy evaluation rather but performance, inflation eventual notbased was attempt stabilization seriousness about judgment that though stress should part. on call war. by affected Serbiawere Georgia, countriesArmenia, three All estimates). staff IMF 1994; Petrovic, Dragutinovic, (Bogetic, 1994 part 1993 definitionduring Cagans hyperinflationby experienced also sample, our not is which Serbia, 9. 1995. July only band exchange an to moved it since flexible of category the in Russia include We flexible/fixed. as listed are hence and rate tight monopolistic competitive letter wealthy particular fixed

showing evidence present (1995) Botousharov Havrylyshyn profiles. similar very look would show 12. mid-1995. attempt no been had there because analysis, econometric figures all profiles excluded Turkmenistan sample, 26 Of 11. 12.2. table reported level exceed likely economies some decline maximum recorded eventual means This output. minimum year we grow, begun has which For 10. Economies Growth Stabilization fiscal deterioration temporary 13. economies. transition growth money between correlation positive DEPVARit form takes regressions series cross-section pooled equation estimated specific, To 14. system). banking loans bad up cleaning nets safety social creating example, (for reforms structural needed expenditures large initial associated appears after . above; defined as growth, GDP either DEPVAR where country; ...25. 1; u time; indexes 1993, i over i.i.d be assumed term error t Became Russia How Anders, Aslund, 9,283320. Annual,1994, Macroeconomics NBER Europe, Central Speed On Blanchard, Olivier Philippe, Aghion, References arrangement. IMF explicit an without 1994) Petrovic, Dragutinovic, (Bogetic, 1994 early inflation reducing successful highly was study, this part program, stabilization Serbian 16. declines. output suffered Union) Soviet former withinthe (or total shares larger countries that report) not do (but found also We 15. data. from 1991, income capita per log LPCWB91 countries; FSU or CMEA other going exports measures CMEAGDP 1992; for dummy time Y92 index; liberalization value cumulative CLI value); anegative take deficitwould afiscal (thus, variable balance government FISCAL dummy; rate exchange is FIXED variables. explanatory with uncorrelated a to Transition Macropolicies Gelb, Alan Leszek, Balcerowicz, 1995. Institution, Economy.Washington,DC:Brookings A Economy: 14,118155. 1992, Policy,April Economic Poland, Case The Europe: Eastern in Trade International Adjustment Structural Sachs, Jeffrey and Andrew, Berg, Economics,1994,2144. Development on Conference Annual Bank World the of Proceedings Perspective, strong ai b1FIXEDit b2FISCALit b3CLIit b4Y92it.b5CMEAGDPit. b6LPCWB91it uit; .. (. Market Three-Year

Transition: Speed Optimal Roland, Gerard Micael, Castanheira, 25117. 1956,pp. ChicagoPress, Money.Chicago:University Theory Quantity Studies ed., M., Friedman, Hyperinflation. Dynamics Phillip, Cagan, 5209, No. Working Growth. Crises Inflation William Michael, Bruno, Belgrade, MECON, CES 1994, 1992 Yugoslavia Beginning Hyperinflation Anatomy Petrovic, Pavle Dragutinovic, Diana Zeljko, Bogetic, Elgar, Edward Engl.: Aldershot, Europe. Reform Making Coricelli, Fabrizio Mario, Blejer, Vegh Carlos Sahay, Ratna Stanley 426 Unemployment Low (Privatization, Successes Russia: Daniel, Cohen, Bruxelles, Analysis, Equilibrium . Constraints Liquidity (Mafias, Failures A University, Harvard Baltics, ofExperience AComparison Stabilization: Credible Institutions Monetary Ardo, Hansson, 87133. 8, Annual,1993, Macroeconomics NBER China, Experience Incrementally? Transform Economies Communist Can Singh, Inderjit Jefferson, Gary Alan, 91105. 5:4, 1991, Perspectives,Fall Transformation, Socialist Process 221257. pp. 1994, Press, Chicago University Europe.Vol.1,Chicago: Eastern The eds., Sachs, Jeffrey Froot, Kenneth Olivier, Blanchard, In Now. Then Union Soviet the Russia 32,485512. Economics,December Factors Macroeconomic Role The Stanley, Fischer, April Update.London: Report 1994. October EBRD, Report.London: Development, Reconstruction Bank European Policy. forthcoming 1995; Expansionary? Stabilization is When William, Easterly, 1718. 6, Transition,January/February Data! Power Try GDP, Forget Economies: Transition in Decline Real Pohl, Gerhard 6,1920. 1995, September/October Transition, Update, An Decline: Output Consumption Electricity Istvan, Dobozi, September Bank, World mimeo, Transition, Patterns Market: to Plan From Gelb, Alan Denizer, Cevdet Martha, Melo, 31,271298. 1993, Economics,June Monetary of Journal Growth, Long-Run and Jose,Inflation,Taxation, Gregorio, De 1995. August 1224, Paper Discussion London, Research, Policy Economic for Centre Analysis. General Theoretical .) .).

Post-Socialist Dynamics into Unofficial Integrating Kaliberda, Aleksander Daniel, Kaufmann, Review. Bank National Bulgarian forthcoming 1995; IMF, Facts, Just Transition: Five Botousharov, Peter Oleh, Havrylyshyn, Economies Growth Rebirth Vaclav, Klaus, 1995. office, Kyiv Bank, World mimeo, A Recession: Transformational Janos, Kornai, After.Prague:Ringier,1994. Years Five a Creating Jeffrey David, Lipton, 181227. 46:2, Applique,1993, Economie Development, Hungarys Example Through Examined Phenomenon 88116. 19:1, Economics,August Comparative Transformation, Policy-Led for Need Hysteresis Russia: Laissez-Faire Inefficiency Braguinsky, Serguey Grigory, Yavlinsky, 39,629695. 1992, September Papers, Staff Overview, High Stopping A., 1982,pp.4197. ChicagoPress, University Effects.Chicago: Causes Inflation: ed., E., Robert Hall, In BigInflations. Four Ends The J., Thomas Sargent, 1996. Reform,forthcoming Policy Journal Evidence, Interpretation Analytical Economies: Transition Stabilization Inflation Ratna, Sahay, 101145. 18, 1994, Policy,April Union, Soviet Former Europe China, Reforms Factors Structural Woo, Thye Wing Press,1993. Mass.:MIT Economy.Cambridge, Market the to Jump Polands Jeffrey, Sachs, 125174. 10, Annual,1995, Macroeconomics NBER Theories, Competing Analysis An Stabilization: RateBased Exchange Effects Real Vegh, A. Carlos and Sergio, Rebelo, 1991. Fund, Monetary International 91/76, Paper Working IMF Liberalization. Price During Biases Number Index Kent, Osband, 1,75133. Activity,1990, Economic on Papers Brookings Poland, of Case The Europe: Eastern in Economy Framework Country: General

at presented This 13 Introduction a fact, interesting It CEE. thirteen focuses poorer reach take will it long key development. time terms Western (CEE) Europe Eastern Central far how is title by raised question Europe? Vadis Quo entitled inflation except criteria, Maastricht macroeconomic meeting close were them most 1995, Already countries. policy considerable shows six. bloc socialist none period, West convergence was there while And period. change not did lead, in Czechoslovakia six, positions Interestingly, years. 55 those during ground significant Yugoslavialost Romania, Czechoslovakia, sixBulgaria, one Every 1992. 1937 CEE six European other relative PPP 13.2) (table data includes chapter economies. among incomes relativelyhigh for accounting factor important an be must which heartland industrial closer are Poland, Hungary, Republics, Slovak Czech Europe, central countries The Brussels. from distance geographical their with along decreases Brussels to compared development economic countries areand they south and east farther decline average on economies transition former of levels income the that conference coincidence,

2 countries, good assume they time, estimates optimistic These Albania. 60 over Republic, Czech years 1115 varies answer estimated regressions, standard Using Greece). Portugal, (Spain, levels reach CEE 13 We countries. process incentive acritical provided has Union European entering prospect doubt No 13.4). behind significantly falling banking privatization only with impressive, reform structural indices Their inflation. low achieved have them most now By rate. exchange Fischer Stanley by determined 1992 from assuming country, gap up make long ask And years. 55 subsequent during available were data 1937 six each income much how 13.10), (table chapter At move. should country direction economic political domesticconsensus extent turn which follow, economies policies more, Even economies. those affect negativethat and positive shocks on depends It predetermined. not will time length chapter, end at note we as But, encouraging. are countries transition then richest for results members. EU low-income capita per a close or years, 23 take would it that is estimate The regression. growth generation. one about to equivalent income, lost terms in generationswas, two roughly lasted experimentwhich socialist of cost the words, other In percent generation.

countries. with gap close take will it long address finally standards, light performance recent evaluate then EU, those between gaps income compare first paper, In space. time interested we distances course, But, norms. EU meet standard, By Athens. Lisbon, Helsinki than closer countries, Western most that near as no While Brussels. geographically (EU), Union European already Relative paper. included CEE thirteen each capital geographical shows 13.1 Figure [1995]). Steinherr Gros see measures, other (for sseldorf Du development level relates which (1979), Giersch work well-known comes measure this interest distance. physical justification, empirical theoretical without not measure, simple One multidimensional. Brussels distance concept Brussels.2 all, implicitly some, for explicitly destination, present The are. road down far how heading are they where is question way, under well now process With 1990. until orbit economic Soviet these all extents, differing to times, Starting development.1 levels different very at were (CEE) Central in countries transition todays 1930s, of end the At Introduction Vegh A. Carlos and Sahay, Ratna Fischer, Stanley Brussels? from Europe 13 Eastern Is Far How

. kilometers) (in Brussels from capital of distance Europe: Eastern Central Union, European 13.1 Figure Vegh Carlos and Sahay, Ratna Fischer, Stanley 432

adequate an Forming begin. order warning word Adisclaimer Brussels? Europe Eastern Is Far How such form to, wanted if even not, could performance. likely current economy structure knowledge sophisticated detailed requires provide here seek Rather, time. this at judgment a towards transformation Structural criteria. Maastricht are, indicators important impressive Recent far not richer large, still while systems. market-based adopting progress CEEs performance, macroeconomic gaps Brussels: concepts different three present potential. performance economic them relating measures various presenting discussion further relative six each observation striking most fall. its after soon socialism rise before is, 1992; 1937 several compares 13.2 Luxembourg.3 two than less as shown Albania GDP real enormous: Luxembourg, richest Albania, CEE, poorest gap country lowest Greece, below percent seven was Republic, Czech countries, level 1995 highest The EU. already some those close quite advanced more that noting worth EU, capita per between overlap no is there While database. (WEO) Outlook Economic World IMFs 1995, estimates PPP are These shows 13.1 Table Gaps Income low-income in levels income years 30 about may average, that, find we projections, growth long-run on Based countries. EU up catch countries CEE for take will it long how asking by Brussels from distance of notion the quantify to try also We behind. lagging reforms sector financial and privatization with rapid, fairly been has system definitive basis

example, For considerably. diverged countries levels, towards converging Hence, period. worsened database. Outlook Economic World IMF Source: 8,727 Greece 11,935 Portugal 3,542 Romania 17,433 Finland 5,132 Bulgaria 14,408 Spain 1,628 F.Y.R. Macedonia, 18,712 Sweden 7,203 Estonia 19,745 Italy 538 Albania 19,922 Austria 3,035 Lithuania 15,611 Ireland 5,002 Latvia 20,737 Denmark 6,364 Poland 18,857 Kingdom United 6,211 18,988 Germany 4,142 Croatia 20,829 France 6,671 Slovak 30,063 Luxembourg 6,342 Slovenia 19,376 Netherlands 8,173 Republic Czech 19,928 Belgium Eastern Central Union PPP-based) dollars, (in 1995 Table Vegh Carlos Sahay, Ratna Fischer, Stanley 434 1992, By Ireland. Greece, Austria, close very 1937, average 72 a hand, other On countries. three all behind way fallen had average, European percent 44 only first by approach We speed. what so, if reversed, be now will communist occurred those from economies transition divergence whether question raise 13.2 13.1 Tables conditions. initial or shocks, policies, country-specific than rather socialism of effect common was period this during growth predominantfactordetermining This 1992. 1937 both leading Czechoslovakia Hungary with unchanged, largely remained CEE levels capita per Europe, to contrast sharp in and Interestingly, years.4 40 last over narrowed have gaps income that suggests Europe Western within position relative the at look cursory

(1995). Maddison Source: 0.25 3,887 1,284 Yugoslavia 0.17 2,565 0.28 1,130 Romania 0.31 4,726 0.48 1,915 Poland 0.36 5,638 0.63 2,543 Hungary 0.44 6,845 0.72 2,882 Czechoslovakia 0.26 4,054 0.39 1,566 Bulgaria 15,493 1.00 4,021 Average 0.29 4,422 0.32 1,271 Turkey 12,498 0.51 2,043 Spain 0.76 11,711 0.75 3,018 Ireland 0.67 10,314 0.70 2,820 Greece 1.02 15,738 1.46 5,870 Kingdom United 21,036 1.51 6,087 Switzerland 16,927 4,664 Sweden 1.13 17,543 0.96 3,871 Norway 1.09 16,898 1.32 5,301 Netherlands 1.05 16,229 0.81 3,247 Italy 1.25 19,351 1.20 4,809 Germany 1.16 17,959 4,444 France 0.95 14,646 0.83 3,342 Finland 1.18 18,293 1.36 5,453 Denmark 17,165 1.22 4,915 Belgium 1.11 17,160 0.79 3,177 Austria average GDP Western to Relative 1992 1937 dollars) GearyKhamis 1990 in (PPP-based, income capita per of comparison countries: European Selected 13.2 Table Brussels? from Europe Eastern Is Far How

provide Summit Copenhagen Convergence Policy Macroeconomic place. take might levels income which at affect will factors other considering then convergence, policy examining Vegh Carlos Sahay, Ratna Fischer, Stanley 436 as use choose we EU, membership guidelines specific no With aspects. economic focuses chapter this importance, great institutional legal, political, EU. accession areas several guiding broad a without years ERM margins fluctuation normal within held 60 debt percent; ratio GDP (low-inflation) same should securities on points; percentage 1.5 more by performing bestthree exceed not must price consumer Specifically, rates. exchange debt, gross deficit, budget government general rates, interest long-term inflation, relate membership.5 EMU required convergence measures specify criteria determiningpolicyconvergence. for principle countrieshave Baltic Hungary, countriesPoland, best-performing some though, true, still is It declining. been they but countries, than higher significantly generally are Inflation that well compares most performance measures, Maastricht two these satisfied would Croatia, country, one only While countries. EU with compare 1995 deficits and rates how shows 13.3 Table GDP. of 3.1 5.3 deficit fiscal Similarly, 1995. 23 to 1992 percent 480 about from declined those in rate inflation average years. five past the during stability macroeconomic towards progress significant made have countries CEE The very realignment.6

2 0.4 Luxembourg 123 !7.2 5.4 Italy 85 !2.1 2.5 Ireland 113 !9.0 9.3 Greece 58 !3.5 Germany 52 !5.0 1.8 France 60 !5.6 1.0 Finland 82 1.9 Denmark 134 !4.5 1.5 Belgium 67 !6.1 2.3 Austria Union Debtd Public Balance Inflation Percent (percent) 1995 balance, inflation Europe: Union, European 13.3 Table Brussels? from Is Far How 7 28.3 Estonia 13 !1.6 9.1 Czech 39 !1.7 Croatia 101 62.1 Bulgaria 62 !12.4 7.8 Albania Europe 49 !5.1 2.8 Kingdom United 80 !6.8 2.6 Sweden 65 !5.9 4.7 Spain 73 !5.2 4.1 Portugal 79 !3.8 2.0 Europe. Eastern Central for estimates Preliminary d. former debt uncollected share estimated Slovenias include external portion The c. Yugoslavia. breakup the after established clearly not debt sovereign Extent b. 1995. in GDP of percent !3.7 be would fiscal included, if revenue; privatization excludes balance Fiscal a. estimates. staff and database Outlook Economic World IMF Source: 25 !0.3 12.8 Sloveniac 33 0.6 9.9 Republic Slovak 21 !2.5 32.0 Romania 55 !2.3 27.8 Poland 4070 !0.9 17.4 F.Y.R.b Macedonia, 12 !2.9 36.5 Lithuania 16 !1.0 25.1 Latvia 86 !6.9 28.2 Netherlands Hungarya

share do they applicable speaking, strictly is, developed. well are long-term markets since apply hard evaluate. difficult ratesare interest criteriaon last exceptions. noticeable more being Hungary Bulgaria debt, Maastricht satisfy appear Most tentative.7 highly viewed be should present we debt public G-7 levels inflation rates moderate reducing difficulty range, percent 2040 slowly quite declining Vegh Carlos Sahay, Ratna Fischer, Stanley 438 turn, (LIP). banking (LIE), regime (LII), competition priceliberalization areas: different policies reflecting produced, Three 1995). 1994, (EBRD Development Reconstruction Bank European prepared indicators qualitative draw who (1995), Melo de by computed based countries, evidence section This place. mechanisms market putting progress impressive made Convergence Policy Structural boards. currency have Lithuania, Estonia exception criterion meet would countries however, years, two realignment basis on Judged arrangement. rate zero from range could indices principle, In measures presents 13.4 Table well. as privatization suggest (1997) al. et Fischer results regression growth, area critical most exchange foreign that suggests (1995) Warner Sachs work Although LIP. 0.4 LIE, LII 0.3 weights with indices, three these using constructed been index a one to place taken reform not liberalization trade and price both for country no There countries. CEE in reforms policy structural extent is data the of aspect remarkable The completely.8 reformed has which regional weighted

gone have these Although higher. or percent 89 score Polandthe Republic, indexthe overall highest four percent, 60 exceeds CEE country each aggregate The least. Romania, Bulgaria, 1995, most achieved having Estonia, Hungary, reform, privatization extent variation more much is There accomplished. substantially been (1995). al. et Melo de Source: 0.71 Romania 0.4 0.61 Bulgaria 0.78 F.Y.R. Macedonia, Estonia 0.5 0.74 Albania Lithuania 0.6 0.81 Latvia 0.89 Poland Hungary Croatia 0.8 0.86 Slovak 0.7 0.85 Slovenia 1.0 0.9 0.93 Republic Czech 0.4) 0.3) (weight: index reform regime competition exchange Privatization foreign Weighted Trade Price 1995 indices, Europe: Central 13.4 Table Brussels? Europe Eastern Is Far How for needed reforms out carrying way a with culture from many differs today countries ex-socialist interact agents individual government which ways Moreover, environment. new effective agencies collection tax inadequate, governance corporate weak, still systems banking EU: in those as level same at necessarily not institutions economic underlying economy, 1996:32). (Murrell resistance political local and planning, central bestowed policy-making nature the inertia, bureaucratic by muted are measures liberalization Strong markets. free of tradition market long

were there easy such creation convergence. yield 13.3 related policyuseful measure give combined could 13.4 through if convenient be would It Indicators Combining Vegh Carlos Sahay, Ratna Fischer, Stanley 440 onto transformed been has Each right, country: for indices four then There 13.1. appear they is, capital according axis horizontal right left ranged liberalization. capita, income distance, 13.113.4: 13.1 figures shown indicators five Figure balance. particularly small, some index, liberalization balance, fiscal inflation, policy three Among distance. closely physical notion supporting indicators, correlated generally Distance 13.4. 13.3, 13.1, tables presented data on based income, capita per including variables, correlations shows 13.5 Table indices. or measures different between correlation indicating one, zero runs a present now We down. deficits budget their keeping well exceptionally done have countries transition CEE Another Brussels. geographical averagewith increaseson Brussels distance economic 13.2 figure given impression An closest.9 one Brussels, from farthest Estonia, of exception possible with that, suggests also Again, Albania. Romania, Bulgaria, laggards order. performers, best are Slovenia and Slovak Republic, Czech category, to weights equal assigning by created overall an When 1995. rate inflation lowest had it since inflation, annual Croatia 13.6 table example, For category. that first ranked is category each country best-performing The 13.6). (table categories six in performance the combines which index order high scale value rank

0.03 0.47 and Central Aggregate capitaFiscalincome distance economic of measures different between Cross-correlations 13.5 Table 0.56 Liberalization 0.58 0.19 0.17 Price 0.31 0.39 Trade 0.72 0.33 0.64 Banking 0.63 0.86 ation Infl 0.67 balance Fiscal income capita Per Union European 0.75 0.55 0.97 Distance ! Brussels? from Europe Eastern Is Far How 1.00 0.66 0.63 .16 .62 .36 .48 .66 .84 .52 .42 .53 .32 .65 .72

all, after is, 1995. indicators, combined Europe: Eastern Central 13.2 Figure Vegh Carlos Sahay, Ratna Fischer, Stanley 442 long-run typical achievedby transformations increasingly secondand and, itself first, 1996b): (see forces two driven being as economies transition process think can EU. those with up catch to take would it long how ask now Brussels. CEE distance suggestive far so presented The Brussels from Time distance. economic predictor a show results precisely, More transition. during faster growing are reforms deeper undertaken stabilization macroeconomic achieved countries that surprisingly, not find, We detail. some in transitional determinants the explored we 1997), (1996a, al. et Fischer In economy. positively.10 growth affected have indices), liberalization various by captured (as reform structural of measures most and policy, fiscal tighter regime, rate exchange good market pegged

( balance ation infl index income debtOverallBrussels capitaLiberalizationAnnualFiscalPublic fromPer Distance criteriaa selected countries CEE of Ranking 13.6 Table Albania rankingb GDP) Bulgaria 4 Croatia 1 7 8 5 F.Y.R. Poland 6 9 11 12 10 13 3 Republic Slovak 2 Brussels? from Europe Eastern Is Far How criterion. each to weights equal assigning by determined ranking Overall b. rst. rankedfi country placed favorably most The % Latvia Romania Macedonia, Hungary Czech Estonia Lithuania Slovenia a.

[1995] Martin Sala-iBarro (see work Recent implied calculate studies cross-country past drew economies. term longexploration devoted section this remainder The predominate. should economies market typical determinants completed, transformation assured stability macroeconomic Gradually, period. transition grow will how predict help also Brussels from distance policy measures as paper earlier presented several suggest results transitional These Vegh Carlos Sahay, Ratna Fischer, Stanley 444 a dollars ibid.); GDP) consumption exports database), Outlook Economic IMF formation 1997); Zettelmeyer Krajnyak 1996; (sources: before years or one otherwise 1993, mostly ratios 1996); Bank World 1993 are population Thus, available. year latest present We economies.11 CEE key some information presents 13.7 Table consumption. investment policy government reflect to take that control two expectation our rates variables state levels initial controlled studies, previous estimated relationships structural countries. richer than rapidly more countriesisgrowing poorer characteristics, economic other and policies various differences adjusting whether, is, convergence,that conditional concept on focused has literature) f g.t.. form equation an using prospects future predicted we countries, these available data Given ibid.). (source: 1995 basis parity power . &.. .1. POP.t..; GOV.t.; INV.t.; SS0; PS0; for capital gross INV.t.is secondary-school-aged secondary SS0 population), primary-school-aged total of percent (in rate enrollment school primary PS0 year, starting in income is Y0 t, interval time the during growth capita per g.t.is survey purchasing .Y0; ? where

Bulgaria 7.9 0.13 538 0.79 1.19 Albania 1995c expenditureb servicesb based PPPformationb Secondary Primary rate ationgrowth andconsumptionInfl Populationcapitaldollars, enrollmenta School ofGovernment inExports capitaGrossincome Per Central growth term longaffecting Factors 13.7 Table Czech 2.0 4,142 0.06 Croatia 62.1 0.17 0.50 5,132 0.12 0.71 Estonia 9.1 0.52 8,173 0.31 0.89 0.99 Hungary 28.3 0.21 0.68 7,203 ! Latvia 28.2 0.10 6,211 0.23 0.81 0.94 Fund Monetary International Source: 23.2 0.42 4,922 0.84 0.91 Average 12.8 0.54 6,342 0.25 0.97 Slovenia 9.9 0.65 6,671 0.22 0.96 1.01 0.35 Republic Slovak 32.0 0.28 3,542 0.30 0.86 Romania 27.8 0.27 6,364 0.16 0.98 Poland 17.4 0.14 0.45 1,628 0.38 0.80 0.87 1.12 F.Y.R. Macedonia, 39.5 0.24 0.32 3,035 0.19 0.15 Lithuania 25.1 0.20 0.41 5,002 0.18 0.92 0.83 ( Development Cooperation Organization enrollment, growth, population (1996) Bank World The ation; infl expenditure, governmentconsumption, services, goods exports income, capita per database) Outlook Economic Brussels? from Europe Eastern Is Far How average. Period c. prices. current in GDP b. population. age of Share a. enrollment. school secondary (1997) Zettlemeyer Krajnyak and formation; capital gross for 0996) W 1 .35 .06 .31 .53 orld

implies model financing. its associated distortions well as spending, type depend results). contrasting [1992] Renelt Levine [1986] Ram effects regarding conclusive not literature empirical output. steady-state alsoraise sustainedwill if state, steady path increase also physical Higher 1991). Helpman Grossman 1990; Romer (see more investing Countries capital. represent ones. richer tend poorer paribus, ceteris that, hypothesis convergence follows Y0this negativelyrelated g.t.,is growth, Per [1]. equation variables explanatory below presented neoclassical from signs predicted t. rate POP.t. t,and expenditure consumption government GOV.t. t, interval during GDP) (in mation Vegh Carlos Sahay, Ratna Fischer, Stanley 446 endogenous models Some reduced rate, saving a imply rates higher because capita per on growth population impact negative economies market fast-growing contrast, In countries. across variation wide with 1995, GDP percent 22 average amounted formation Gross adaptation.12 innovation technological ensure skills, entrepreneurial build institutions, market-based retraining provide required be will investment capital human further likely it economies, attained education level Despite growth. for requirement important an by ensured that literacy basic countries). developing relative (especially ratios enrollment school secondary and primary high extremely features impressive most The future. Europe Western faster grow to these expect should one basis, this On low. relatively are countries transition CEE the levels income initial indicates, 13.7 table As activities. productive other than children raising in spent is time of amount given larger

sequestration, compression, expenditure involuntary evasion, tax led often 1996) Sahay Haque 1996; Davis Cheasty (see reasons various deficits budget reduce need declines revenue Rapid growth. reform affecting adversely may some seen scale expenditures reductions sharp clear increasingly becoming growth, reduced must sustainable not previous While 1995.13 GDP 18 level average to process, transformation start 5060 sharply declined countries most consumption Government GDP. percent 30 least at ratio investment an have typically Asia Brussels? from Europe Eastern Is Far How up setting infrastructure, physical administration, government quality improving institutions, market-based building spending public well-planned enhanced be would it Indeed, arrears.14 a expect could reduced, children, particularly dependents, system support state extensive As negative. cases many low, Population net.15 safety "#0:0075 .0:0302 (1992):17 (1991) Barro estimated equations used we economies, theCEEtransition long-term project To rapidly.16 declining but high, quite still was 1995 rate inflation The openness. degree so favorable extremely are indicators capital Human economies. market fast-growing slow for averages past with of determinants key comparing by transition CEE potential on insights preliminary provides 13.8 Table uncertain. less become economies these prospects economic the once recover will rates that though likely is It rates. population in decline .0:025 . .0:0305 .3. INV: .17:5. SEC .3:17. .2. POP #0:38 Y1960 #0:35. .#0:83 capita per equation: growth Renelt and Levine GOV #0:119. build-up social further PRIM

13.8 Table Vegh Carlos Sahay, Ratna Fischer, Stanley 448 income capita per real level initial Y1960 Here 19601989. c. 1960. b. countries. CEE 13 for Average a. (1992) Renelt Levine Source: 23.2 31.1 12.3 ratec inflation Annual 0.42 0.32 Exports/GDPc consumption/GDPc 0.18 0.12 0.16 Government 0.22 0.17 0.23 Investment/GDPc 0.84 0.10 0.30 Secondary-school rateb 0.91 0.54 0.90 Primary-school 1995a Europe growers Eastern Central Slow Fast perspective 5 least at indicate next stars (The GDP. INV GDP, expenditure share GOV secondary SEC rate, enrollment school primary gross PRIM population, rate POP equation), LevineRenelt 1,000 by divided equation Barro logs (expressed basis a There below. predictions that qualifications several about reader caution imperative is It level.) percent (in ratios consumption same assumed variables, control 13.7. table presented figures used consumptionwe government investment exception [3]with [2] variables all For process. on influence considerable exert they literature), existing (even quantitatively assess hard factors such While factors. institutional political, external, important potentially some from abstracted also have These studies. other apply were ways significant differ could projections our Thus, period. sample and selected, countries specification, model to sensitive are coefficients values Moreover, two. only use we which literature, the in available equations growth estimated of global PPP plethora

exhibit indicates, 13.7 as because, Brussels? Europe Is Far constitute those policies, same follow assume sense makes exercise, our purposes future. change also but across widely very differ only not policies that assuming equivalent be project figures current Moreover, time. present at unrealistic) seem even some (and variation range Hence, scenario. policy gives which 13.9), (table Barros using obtained scenario optimistic surprisingly, Not GDP). (10 consumption government alow GDP) (30 ratio investment terms growin assumed were These ($4,922). twice ($11,690) three 13.9, table indicated As Spain). Portugal, (Greece, these each number computed rates income initial Based 4.46.3 5.3 declines equation, Levine based calculations range. percent 4.97.1 falling all with percent, 5.6 is region rate average The variables. capital human weight high 2 a ask now We Brussels). reach will (i.e., GDP countries for may long how asked have we far, So Brussels from away Drifting converge. time shortest take projected are Estonia and Slovak Republic, Czech countries, Eastern Among years. 31 Renelt Levine alternative while years, 28 predicts equation Barro countries: Union European low-income level capita converge generation one about average, on take, would it equations, both to According year. per by words, other In countries? CEE the in growth hurt socialism of years 40 than more did badly How question: wide good relatively different

 Levine Barrob countriesa low-income convergence simulations Policy 13.9 Table c $, low capita Per converge convergeto yearsto yearsProjected No. F. Macedonia, 33 6.22 6.37 6.10 6.25 3,035 Lithuania 5.79 5.26 25 5.50 4.98 5,002 Latvia 22 5.02 4.49 20 5.28 6,211 Hungaria 17 4.93 4.62 16 5.23 7,203 Estonia 4.40 4.34 11 5.39 8,173 Czech 5.48 5.55 32 5.38 5.44 4,142 Croatia 5.01 4.65 29 4.92 4.56 5,132 Bulgaria 75 6.28 7.47 63 7.10 8.29 538 Albania levels rate PPP-based growth incomegrowthincome 2 at grow to assumed are These considered. is Spain) Portugal, (Greece, Union European in lowest-income three of average the purposes, illustrative For a. countries EU income 2.00 11,690 loweconomies 31 5.46 28 5.77 transition4,922 for Average 24 4.58 4.99 5.31 5.72 6,342 Slovenia 19 5.00 5.34 15 5.86 6.21 6,671 Republic Slovak 34 5.64 5.84 36 5.47 5.66 3,542 Romania 23 4.75 4.95 18 5.42 5.62 6,364 Poland 52 5.96 7.08 50 6.08 7.19 1,628 consumption/GDP Government b. annum. per . GDP Investment/ c. Vegh Carlos and Sahay, Ratna Fischer, Stanley 450 percent. Renelt Projected Y. percent 10 30 R.

1 (column initial with together coefficient, estimate used then 19371992. below) (defined coefficient absolute estimated 13.2), listed (the European core 12 took first We stages. three proceeded answer, an provide To 13.10. 13.2 tables indicated six for only question this answer try will we data, lack Due period? that Brussels away drift did much how Macedonia. F.Y.R. Slovenia, Croatia, Yugoslavias while Republic, Slovak and Republic Czech those average is rate Czechoslovakias b. text). (see regressions authors on based Predictions a. 5.08 5.34 23 5.39 5.59 30 5.64 31 5.47 24 4.75 5.02 21 20 5.42 5.28 18 25 4.70 5.01 15 26 5.65 4.92 Renelt)b (Levine up make required years Number (Barro)b growth future Projected 9,785 9,559 14,404 13,446 4,619 3,887 1,887 1,284 Average Yugoslavia 10,537 13,102 2,565 1,130 Romania 9,858 9,810 14,584 15,448 4,726 5,638 1,915 2,543 Poland Hungary 9,000 9,946 15,845 14,000 6,845 4,054 2,882 1,566 Czechoslovakia Bulgaria minus socialism lost (3) (predicted)a (2) (actual) 1992 (1) 1937 period Socialist during lost income Estimating 13.10 Table Brussels? from Europe Eastern Is Far How Western pattern convergence general followed they had 1990s been have would countries CEE these in GDP capita per of level the what compute to 13.10), table

using equation following first (1992), Sala-i-Martin Barro Based socialism. under long how calculate 13.9 rates growth long-term projected used Europe. Vegh Carlos Sahay, Ratna Fischer, Stanley 452 ln.yi; procedure: squares least y where .4. 0..ei; $bT.ln.yi; $e $.1 C..C i capita, T case), (55 length e coefficient, convergence C term, error independent countries). across common (which term constant 5 significant which 0.029, b estimated basis On year.18 every closed was poorer richer is, period; this during year percent three rate average an at converging were these implies This level. such itwould ofyears number computed Finally, experiment.19 attributable loss as interpreted 1992 actual value between gap The 13.10. (3)of column indicated are values These countries. (1992) period terminal predicted we countries, six GDP capita per (1937) initial countries)and European Western 12 (the group control socialism transition into Six Comments Concluding generation. one equivalent income, generationswas, two roughly lasted experimentwhich socialist cost words, other In Romania. 30 about republics Czechoslovakian former 18 15 time, lost make average, on years, 2324 take would it 13.10, table in shown As a not be out turns all, after (which, physical ranging distance, measures different presented We Brussels? from Europe Eastern and Central far How question, discuss evidence preliminary sufficient there economy, countries CEE richest the that is conclusion overall One levels). income EU with up catch needed years of terms (in distance time to distance) economic for proxy nonlinear =yi; indexes coefficient loss. market bad

ensure right favorable conditions starting placed, well equally all while Nonetheless, strain. severe under system banking complete enterprises state privatization economies, most standards. reaching before go distance some still institutions market-based many However, regimes. trade exchange, foreign price, liberalizing particularly fronts, necessary several rapidly moved Many place. spending public quality improve investment promote policies scenario best-case based long how estimates Our predetermined. Brussels reach country given any will length course, socialism. more or 40 income worth generation one gave CEE average, on that, estimate experiment. socialist during squandered related directly is time catching-up Naturally, countries. Western low-income up catch years about only take could it example, Brussels; away far Brussels? Europe Is Far How a As Yugoslavia. Czechoslovakia breakups resulting differences with countries, were there 1939, In (Serbia-Montenegro), Yugoslavia Federal ofMacedonia, Republic Yugoslav former Lithuania, Estonia, Croatia, Bosnia-Herzegovina, Albania, (CEE) Eastern Central 15 1. Fund. Monetary International reflect necessarily not do authors those paper expressed views assistance. research excellent Adams Claire them, interpret us helping making colleagues IMF grateful suggestions. comments insightful participants conference Sala-i-Martin, Xavier Ludlow, Peter Gros, Daniel Csaba, Laszlo thank We Notes Brussels. to trip 1996a). al. et Fischer GDP(see underestimate economies transition for available that belief our reinforces gap size The 3. Slovenia. Romania, Bulgaria, Lithuania), Latvia, (Estonia, Baltics Republic), Slovak Poland, Hungary, Republic, Czech (the Visegrad they Union; European members associate 1996) September (as currently are 10 paper, in discussed countries 13 the Of 2. study. this from excluded been have Bosnia-Herzegovina and Montenegro) (SerbiaFRY difficulties, data of safe result

A 4. Vegh Carlos Sahay, Ratna Fischer, Stanley 454 For 5. test definition, Under 8. economists. provided estimates 13.3 available; often figures Official 7. judgment. room leave criteria (1996), IMF discussed As 6. (1996:4043). Outlook Economic World IMFs see criteria, . (1/(1 10,000; divided capita 1995 variable The 9. one. country 1 fiscal 1995; show (1994) Easterly indicators, human high consistently Despite 12. below. appear although growth, studies several significant been rate) (such some include rates. simulations regressionsubsequent used were 13.6 presented all Not 11. Mongolia. Baltic nonCEE, addition include, based results These 10. 13.4. overall index liberalization 13.3; expressed deficit where deficit), ofthe value (3/absolute otherwise 3percentofGDP than less subject consumption government well as formation gross data: warning standard repeat 13. progress. technological imported adaptation slow skills entrepreneurial lack by explained part, was, argue labor, capital between substitution elasticity low Union Soviet former decline economic cause a converging group latter perhaps poor, remained have which when biased coefficient beta indicate may fall This one-half considerably down slows countries, 12 core Turkey) Spain, Portugal, (Greece, Southern four add if sample, our year. per percent two about 19501985 during European Western seven across regions 73 convergence rate find Sala-i-Martin 18. regressions. (1992) Renelt Levine (1991) Barro variables side right-hand matching economies transition CEE data obtain straightforward relatively was it quoted widely are they equations chose We 17. growth. with associated negatively inflation for (1993) Fischer See 16. institutions. better on impact positive point regressions growth cross-country from evidence empirical present (1995) Knack Keefer 15. countries. these improved need expenditures public quality and collection revenue both rather but desirable, be would deficits budget larger that imply to mean not do we point, this noting In 14. 13.7. table included countries most in stage early an at still is accounting income national system U.N. demand-based the because primarily error, of margin steady formal description inflation)) leading wide lower

shared which Poland, Hungary, Czechoslovakia, least at sense make appears convergence absolute hypothesis However, steady-state. same converged have not would therefore, and, 1937 European core 12 different argued can It 19. paper. this scope beyond lies convergencewhich conditional testing steady-statei.e., affect that variables controlling by tested be could This level. income state Brussels? Eastern Is Far How a References 13.10. 13.2 tables listed countries CEE three other obvious less is answer Brussels. close physically also were Europe Western with structures economic background historical Press. MIT Mass.: Cambridge, Economy. Global Innovation Helpman E. G. Grossman, Change.London:Longman. Winds Steinherr D., Gros, 115(4):629652. Archiv Weltwirtschaftliches Perspective. Schumpeterian EmploymentA Change, Structural Growth, Aspects (1979). H. Giersch, Publishers. Transition.London:KluwerAcademic from Lessons (ed.), Zecchini In Prospects. Evidence (1997). 86:229233. Proceedings Review, American Beginnings Transition: Economies (1996b). 10:4566. Perspectives Experience. Early Economies: Growth Stabilization (1996a). Vegh Sahay, S., 32:485512. Monetary Growth. Factors Macroeconomic Role (1993). Fischer, Update.April.London: Report EBRD. London: October. Report. Development) Reconstruction for Bank (European EBRD (March). Mimeo Data. Republican Historical Decline: (1994). Fischer S. W., Easterly, Bank, World The Mimeo. Transition. Patterns Market: to Plan From Gelb A. Denizer, C. M., Melo, De D.C. Washington, 96/61. Paper Working IMF Assessment. Interim An Union: Soviet Former the Countries in Transition Fiscal (1996). Davis J. A., Cheasty, Growth.NewYork:McGrawHill. (1995). 100:223251. Economy Political Convergence. (1992). (1):107158. Activity Economic on Papers Brookings Regions. States across Convergence (1991). Sala-i-Martin X. and J., R. Barro, 106:407443. Economics Journal Quarterly Countries. of common Cross-Section

Up? Catch Poor Dont Why Knack S. P., Keefer, Department. Research database, Outlook Outlook.May.Washington, Fund) Monetary (International Papers. Staff Forthcoming 96/19. Paper Economies. Countries Developing Framework Analytical An Deficits? Budget Close Cuts Wage Government Do Sahay U., N. Haque, Vegh Carlos Sahay, Ratna Fischer, Stanley 456 A (1992). Renelt D. R., Levine, forthcoming. Paper, IMF Appreciation? Real Scope What Economies: Competitiveness (1997). Zettelmeyer J. K., Krajnyak, Park. College Maryland, University Paper. Working IRIS Explanation. Institutional an Test National D.C. Washington, Database. Development Indicators Social Bank World The (1):195. Activity on Papers Brookings Integration. Global Process Reform (1995). Warner A. J., Sachs, II):S71S102. (Part 98 Economy Political Change. Technological Endogenous (1990). M. Romer, 204. 68:194 Statistics Economics Countries. 155 Data Real from Evidence Perspectives: Cross-Section Series Time in Hypothesis Wagners (1986). R. Ram, Paris. 2/1996. Economies IndicatorsTransition Short-term Development) and Cooperation for (Organization OECD 10:2544. Perspectives Journal Progressed? Transition the Has Far How (1996). P. Murrell, 82:942963. Review Economic American Regressions. Growth Cross-Country of Analysis CrossSensitivity

III Development and Poverty

It 14 Introduction inflation, costs social judging important issue hurts disproportionately all, tax cruelest describe against rhetoric reasons there While interested.1 been long I University, York New now but Bank World then Easterly, William chapter clear. not however both, time, place took wage minimum adjustment because se per lower effects due was Whether incomes relative improved clearly stabilization Real Plan Brazilian when 1994 changed That view. with along go evidence good lacked thought richI assets financial inflation-protected own less instance tax which extent say see countries, 38 from households 32,000 nearly data polling given poll, poor. share income on actual impacts We them. a as list rich likely more poor basic issues.2 one prices high Inflation most. about concerned are personally they three two choose asked issues for bad that view support tend These wages. real poverty, inequality, or measures direct inflation between relationship at look also we chapter, this of section third In elections. matter sure, be though, reality rather perceptions reflect may it and think, people what checks. robustness several to up stands The sample. developing than countries industrialized the in stronger statistically is result This problem. staple topic have regressive use problem personal

mentioning probability plots 14.1, figure found be can data feature interesting An poor. bad that evidence further provides paper this Thus strong. very not surprisingly results statistical though poor, Fischer Stanley a There decade. past over against problem not. probably conclude prices high inclusion by polluted seriously answer on put interpretation whether discuss we 2. end at cited is which respectively, (1982) Huizinga John (1978) Modigliani Franco with work Including 1. Notes chapter. text in discussed these for reasons Possible averse. less Ukraine Brazil average, than averse inflation more much being as out stand Singapore and China particular In interest. of are relationship average from deviations the but relationship, positive top significant

essential stealth. imposed can understood, beinglittle mechanism taxing because, unfair particularly mean could It rich. hurts meaning as interpreted all cruelest inflation claim Stanley Easterly William 14 Poor Inflation portfolios (small) while against way some hedge instruments financial access have sophisticated particular, poor. from, benefit against, themselves protect able better argument lead does (1978) Modigliani Fischer outlined economy potential list long study Certainly, economy. each histories institutions specific versus relative sophisticated, less portfolios, cash hold likely points from Aside decisive. arguments these However, indexed. transfers direct or subsidies state remainder For incomes. real their reduce directly will often pensions poor, elderly Among inflation. to indexed fully not income state-determined rich than depend also cash. share a results draw First, ways. two in on inflations examine we chapter, this In economies. among differ well may answer and one, empirical an be must question The taxation. capital including system, tax details complicated through come inflation effects many so because especially inflation, by more relatively hurt are who poor the is it that presumption 31,869 of survey priori larger clear global

as regarded views supports Our samples. cross-time cross-country various inequality measures direct assess rich.Second,we for aproblem more issue getting at way indirect provides This problem. national important think whether asked which thirty-eight individuals Fischer Stanley Easterly William adds thus It relative reduce appears nonpoor, it than view support tends unanimously balancebut body worsens (1995) Powers inflation. data annual using States, United deals literature Most Survey Literature evidence. new turn literature, reviewing by start We tax. wages real lower finds she However, holdings. cash negligible their because America line below already those affect not does tax argues (1992) Cardoso countries, other Moving tax. cruelest or little is there balance, On significant). was quintile second (only quintiles two bottom shares income slightly rates, (1986) Blinder Blank 19591989. rate reduces an find contrast, (1991), Katz Cutler rate. income-based impact significant no has but 19591992, over measure found (1996) Ravallion Datt 19941996. stabilization successful declined then 1980s rising steadily increased Brazil coefficient Gini out points who 568), p. (1998, Rezende from comes evidence fragment additional An countries. American Latin seven a associated be will (unanticipated) increase run,an short In perspectives. term longercyclical between differ to likely are poor incomes on effects argue (1998) and Romer rates. poverty had also rates inflation higher with observations India of study cross-state however, term, longer Over poor. the benefit relatively well may that unemployment, in problem growing cruel consumption-based panel cross-time, decline

Even reversed. then could unemployment, reduce permanently cannot higher Poor Inflation is consideration One ambiguous. income, like are, priors Our uneducated. inflations effect independent there educated, income. other factors attitudes impact explore will we data, work our In data. cross-country rates poverty finds (1998) Agenor growth. economic negative part attribute result terma longer poor increase tends lower panel, international an Using nineties. decades earlier stronger distribution on effects find Romer perspective, have probably uneducated The educated). by disproportionately held are hedges good bonds stocks (also protected feel with those inflation, against hedge economy do can damage about know educated But more. dislike portfolios, cash capital human weight mention likely be may so probabilities analyzed who (1982), includes using literature Previous educated. less concern cited frequently more consistently that They 19391978. period over States United nation, facing serious most) they paper, this question Apropos recessions. during except than as mentioning probability a unemployment relative aversion living standard association no (1997) Rose to related insignificantly but positively income analysis regression in Moreover, nonmonotonic. sometimes was although aversion), (inflation problem above. school high only discriminated variable their However, aversion. inflation education level the between relationship little found also (1982) Huizinga and Fischer countries. ex-Communist from data polling of cyclical whole top (or positive sample

relationship section crossOn aversion. poors testing averages national control Stanley Easterly William poses (1996) Shiller unemployment. associated problem serious or mentioning States variation cross-time did (1982) Huizinga Fischer However, inflation). have reason be could Czechs importantthe is causality (although quadruple-digitinflations Belarus Ukraine higher had low its with Republic Czech falling. unemployment relative rose aversion aversioninflation actual between countries transition among association little found (1997) Rose Likewise, paper. this data same using correlation weak conducted He Inflation? Dislike People Do Why ours, related closely 7 Only power. buying my hurts inflation response sample percent 77 about concern biggest what asked when sample, U.S. In living. standard reducing perceived was answer His Brazil. people 677 causes economistsinflation traditional chose inconveniences: shop, comparison harder it I a Worldwide, Starch Roper Data The Income Concerns Inflation on Results results. empirical our reduces idea for support some find will We wages. real changes from income asset by protected less probably are they because more inflation dislike uneducated poor expect might than inflation, peoples most reflect indeed results Shillers If inflation. of process during level price fast as rise not would wages their view supported Brazil Germany, States, United samples in majority further, Whenpressed etc. cash, much too holding avoid measure to use we that survey the coordinated firm, research advertising and opinion, public surprisingly question questionnaire lot feel marketing,

Here is: focus education. level (self-assessed) living their according classified countries from Respondents survey. transitioncovered developing nineteen industrialized, countriesnineteen thirty-eight lists 14.1 Table 1995. May February during Starch Roper by undertaken companies. partner affiliates its work field actual did (INRA) Associates Research International concerns. Poor Inflation know. dont these, none other, say could concerns, noneconomic other fourteen There quality. educational bills, money prices, unemployment, recession were included economic most personally me tell list over read you Would today. concerned they us told have things 1 value takes variable 0 themselves), ranked (the concerns three top mention people a with .0043, only was concerns two these between all among correlation bills. pay right live enough money which living, standard addresses directly concern top another there Fortunately, low complaining simply may then latter, If wage? respondents past compared prices priceswill will respondent how unclear It prices.1 high includes also it unfortunate response wording dummy define We country. own her or his participant relative relating as answers interpret therefore should question, this self-classifying are participants Thus poor. poor, by, getting average, comfortable, very rich, categories: seven one themselves classify respondents asked survey on income The prices. those inflation just mentioned questions to States United responses poll in difference no found (1982) Huizinga Fischer wages. real not inflation about really is question prices high and inflation the that reassured moderately be can we Hence, .437. of if otherwise. p-value

Australia know ism aid mism tions gration quality tion on abuse plmnt AIDS Crime Dontprices ForeignTerrorextrepollurelationImmilivecorrupDrugto highUnemEthnicmentalgiousForeignOther/ enoughmentEducaReliandsion/ EnvironRacial/ MoneyGovernInflationRecescountry by problems, three or two top the among as problem given mentioned that responses of Percentage 14.1 Table 18 0 25 26 Denmark 5 21 8 20 Kong 19 14 13 7 9 24 11 4 17 15 10 22 12 3 2 6 1 Fischer Stanley and Easterly 16 Austria Belgium Republic Finland Greece Japan William Canada China Colombia Brazil Czech14 Chile France India Italy Hong Ireland Germany Hungary Indonesia

Mexico Poor the and Inflation 24 28 23 18 15 13 20 0 26 22 2 4 19 9 3 7 USA 6 5 11 10 16 1 12 17 8 Ukraine 14 Philippines Russia Spain Switzerland Taiwan Thailand Turkey Kingdom Sample10 Netherlands Poland Sweden United5 Singapore Venezuela Norway average

1 value take Fischer Stanley Easterly William problem percentages poll statistics summary 14.1 country. sensitivity underlying indicators them review later regressions, our include also category. threedummy code again higher. secondary/technical, less, primary categories: following themselves put asked question Similarly otherwise. zero self-classify x total number We Results Education Income average. account recession/unemployment crime Only inflation. responses 10 for nations across average responses. has respondent each where problems, likelihood below.) discussed be will they point; this at effects country (Individual results. shows 14.2 Table education. omitted, education higher Likewise, rich. measure so specification, omitted 14.2. table shown results dummies. education dummies category income variables independent concerns. national three or two top among mentioned if one equal variable dependent with equation, have very threshold. statistical common pass does it but sample, large given overwhelming not significance significant. rich categories those between difference that meaning significant, statistically all poor and poor, by, getting just on coefficients poor. to comfortable very from range respondents monotonically increases coefficient respondent. living standard in decreasing is a as inflation mentioning of probability higher percent inflation. about rich concerned more relatively thus are poor The rich. the do than concern probit 10.5

prices high inflation equation probit Estimated 14.2 Inflation who difference educated. dislike educated similar: variable for pattern shown. included dummies intercept Country Note: [.005] 2.79 0.06 Secondary 5.22 0.02 School Primary education (Higher attainment Educational [.017] 2.39 0.36 [.022] 2.30 0.31 Poor [.035] 2.11 0.28 By Getting Just [.057] 1.91 Average [.240] 1.17 0.13 0.15 [.801] 0.25 0.03 Comfortable Very category) omitted (Rich individual living [.000] !7.95 0.14 !1.09 Constant P-value t-statistic error estimate Standard Parameter 31,869 Observations: national only implies coefficient large. absolutely not though significantstatistically, highly less or have mentioning probability percent Those education.2 do mention likely more significantly also education a capital human effects offsetting possibly Recalling education. those than concern lower uniformly coefficients magnitudes The sample. weaker much 14.3b table but sample, country industrial in strong very still are shows 14.3a Table countries. developed developing between sample split to is check robustness Our Checks Robustness second. dominates effect first that suggest results our response, affecting factors as education, higher with damage inflations of knowledge greater the and inflation against primary 3.8 secondary top hedge

[.230] !0.03 [.993] 0.01 0.00 [.150] 1.44 [.134] 1.50 0.25 [.099] 1.65 0.27 [.202] 1.28 0.21 [.539] 0.61 0.10 [.822] !0.23 !0.04 !7.01 0.17 !1.20 observations;country (15,517 countries Developing 14.3B 5.74 0.03 0.18 Secondary 7.97 0.04 0.29 School Primary education (Higher level Educational 2.29 0.59 [.004] 2.13 0.49 Poor [.039] 1.40 0.31 By Getting Just [.022] 1.51 0.33 Average [.184] 1.15 0.22 0.26 [.391] 0.69 0.16 Comfortable Very category) omitted is (Rich living of [.000] !5.56 0.23 !1.25 Constant P-value t-statistic error estimate Standard Parameter shown) not but included effects country observations; (16,352 economies industrial for Results 14.3A Table Fischer Stanley and Easterly William

[.537] !0.62 !0.02 [.406] 0.83 3.91 0.23 3.69 0.07 0.26 !16.28 !1.24 Developing 5.99 0.03 0.19 Secondary 8.36 0.04 0.30 Education Primary education (Higher level Educational 4.07 0.09 0.36 Lower [.012] 2.52 0.06 0.15 Middle category) omitted is Class (Upper Class Income [.000] !14.65 0.08 !1.11 Constant countries Industrial P-value t-statistic error estimate Standard Parameter classes aggregated Results 14.4 Table Poor Inflation inflation mentioning percent a poor very In concern insignificant always but sample, highly still They samples. across robust not variables education be continues on coefficient sample. industrial also are These 14.4). (table class between sample differences significant statistically get upper top and middle three middle class, lower as categories two bottom aggregate we When categories. income defined finely among discriminating in collinearity with do to have may results country developing of weakness The rich. the than probability higher 14 9

men richer than likely more significantly still very poor dummies. inclusion robust education poverty on results results. the shows retired. homemaker, unemployed, blue collar, white professional/executive, student categories over. 70 6069, 5059, 4049, 3039, 2129, category), (the 1420 groups seven The groups. occupational include also check robustness second Our [.250] 1.15 Retired [.121] 1.55 Homemaker [.300] 1.04 Unemployed [.018] 2.37 0.09 Blue [.140] 1.48 Collar White [.133] 1.50 Professional/Executive (Student Occupational 4.60 0.26 70s. 6.03 0.05 60s 4.87 0.20 50s 4.34 40s 5.66 0.21 30s 4.84 0.17 20s their in People group (1420 Groups Age [.003] 3.01 0.02 0.06 Secondary 3.69 0.03 0.10 School Primary education (Higher attainment Educational [.033] 2.13 0.32 [.041] 2.04 0.28 Poor [.057] 1.90 0.25 By Getting Just [.076] 1.77 0.23 Average [.264] 1.12 0.13 0.15 [.755] 0.31 0.04 Comfortable Very category) omitted is (Rich living of [.000] !9.43 0.14 !1.34 Constant P-value t-statistic error estimate Standard Parameter shown) not but included are dummies country observations; (31,443 occupation age to Robustness 14.5 Table Fischer Stanley and Easterly William

tion Poor Inflation cite still respondents secondaryPrimary-educated concern. (blue-collar) unskilled uneducated, poor, dimensionsthe different several disadvantaged relatively averse thosewho reinforcesthefinding workers. collar blueoccupational inflation. introduced uncertainty dislike may assets, down running consuming cycle life stage at This significant). sixties between (the above seventies closely followed sixties, people most group teenagers. about concerned groups age All education. higher those slightly Males dummy. it surprisingthe recession unemployment result poor. by mentioned be significantly and disproportionately which shows 14.6 Table problems. compares inflation with concern their how see had, what examined Concerns statistically females, follow concerns Other significant. is but rich, right live enough money pattern. predictable education of quality much predictably are educated surprisingly. On educated. a as rich less poor found we clear, so priors our where females that results significant only concerns. economic other for regressions in dummy gender tried also We college-educated.3 than mention to likely more were primary-educated further, crime on picture the Confusing however. significant, very not was difference The top problem concern, question

propensity countries graphs 14.1 Figure (1996)]. by noted previously was [as interesting effects pattern question, main our relevant directly Effects Country concerns. quality education right money males than likely were 0.97 !11.85 4.04 !0.05 2.79 Secondary 4.42 !17.66 6.01 !0.43 5.22 School Primary education (Higher attainment !1.14 0.54 5.81 1.04 2.39 !2.07 !0.94 5.27 1.51 2.30 Poor !1.43 !0.47 4.89 1.34 2.11 By Getting Just !0.35 !0.41 2.88 1.03 1.91 Average !0.55 0.50 1.43 0.26 1.17 !0.29 0.86 0.05 !0.52 0.25 Comfortable Very category) omitted (Rich individual living Standard Crime quality bills pay ployment prices Educational unem-right, high live Recession Inflation enough Money shown concern probit level educational income on t-statistic have? poor do concerns other What 14.6 Table Fischer Stanley Easterly William get would (We (19851994). survey preceding decade actual against 14.1) problem(fromtable national Although preferences.) for 14.2 table regression from dummies using picture mention propensities and 19851994 average log between relationship positive a as mentioning likelihood where Singapore, outlier more even An percent. 12 modest its with China higherbut percent 1000 around been had poll before shortly rate the all Brazilin or Russia, Ukraine, not inflation about concerned most paribus, ceteris were, respondents which in country The outliers. striking some are there problem, Russia of those to similar is problem very significant top

a as mentioning of Probability 14.1 Figure 475 Poor the Inflation years. 10 previous during inflation average and problem, national top

2 though even Ukraine, Fischer Stanley Easterly William there speculate descent, largely population Singapores Since sample! entire lowest Netherlands Japan tied which displays hyperinflationHungaryalso post-WWI) (and apost-WWII interesting hypothesis.) weaklyconsistent least at dummies Kong Hong Taiwan (The II. War World after China hyperinflation memory something variable Chinese variable. dummy tendency relative are direction other Outliers average. line out far Germany for observation surprisingly, Perhaps inflation. recent as mention likely less Chile aversion. Brazilian expect us led results election indexationbut from protected well relatively been mid-1994. )introduced Real Plan (the plan success expectations favorable incorporated already have may Brazilians early conducted was survey since argued be It decade. previous over Brazil percent 1000 around having Americans, than problem despite concern low outlier, see We 19851994. rate against agree strongly answer who respondents percentage graph 14.2, figure In poorer.? richer get society, In statement: following with disagree or disagree, mostly agree, strongly you Do This survey. Starch Roperon asked question poverty-related another country actual relate we question, main our to germane More Chile. indexation market capital extensive reflect also 1995, by credibility great had stabilization inflation Chilean that suggest could this inflation high has whole but inflation, about more complain society each within the do only not Thus, significant). statistically highly is (which association a of societies.4 high-inflation in poor and rich between gap percent, modest little top similar history positive perception growing

on depend Perhaps beliefs. ante ex our with accord in not is which classes, upper middle appeal seeking those policies anti-inflationary pursue likely politicians populist suggest do damaging it believe whom, to does damage about facts whatever that, be would interpretation Another rich. hurts some This educated. averse are educated less rich, than inflation more relatively express view for support strong very provides data poll from evidence The actual poorer richer get rich that perception between Association 14.2 Figure 477 Poor and Inflation a as the though even inflation, by financed benefits receive who supporters poor of group inflation. dislike may core whole

income. effects evidence direct more turn section this In Wages Real Poverty, Inequality, Measures Direct Using Fischer Stanley Easterly William . .p=.1 use database). Bank World (both growth capita per GDP CPI regress 1990s. 1980s, 1970s, for (1996) Squire Deininger data next one from at look We Income Quintile Results inflation. correlated indicators three these All wage. minimum real rate, poverty poor: well-being relative measures different a be not out turns Growth CPI. change log inflation, average decade using simply robust are here shown However, considered. being period over by caused value loss annual or time, discrete balances money on tax also is it results; dominate will values extreme which to extent reduces transformation p.This rate percent C Prob. t-Statistic error Standard Coefficient Variable distribution) income quintile bottom share (change DINCQ1 variable: Dependent Table tax. inflation with results only show we 14.7 table so 1997), Chen Ravallion example, (for found have authors other as income, distribution the in changes of determinant significant covariance. and errors standard heteroskedasticityconsistent White 110. observations: Included Squares. Least Method: Notes: 0.013564 0.002084 S.D. variable dependent Mean 0.019918 0.028909 Adjusted R-squared 0.0011 &3.351531 0.005195 &0.017412 INFLATIONTAX 0.0077 2.714256 0.001545 number p.. statistically 0.004195

A tax. significance does but controlling try also highly However, shares. variation much explaining modest, very R-squared Poor Inflation nonlinear: changes effect rate, transformation Given percent. 6.2 just sincethesampleaverageshare significant economically This tax). (from points theshareof decrease With distribution. small typically relative large again 0.5 reduce percent, 40 say, to, a The rate). growth (and regressed levels: run can Alternatively, significant. statistically it tax, with above rerun When appropriate). specification original our which level, price surprises opposed (as want so poor, effectively surprise only hand, other On fixed. are poor incomes nominal some important what level this: priors clear not do We level. instead equation side right-hand on change using for argument be may There otherwise. decreasing percent) 31 rate (corresponding .24 than less if increasing time, over increased have sample paribus ceteris implying constant, inflation. positively coefficient Gini countries, across negatively is population fifth poorest income average log that show They (1998). and Romer results related aware became we paper, version earlier in result this getting After points. percentage 1.7 by quintile lower then would hyperinflation to zero from tax inflation increase an quintile; bottom share the of determinant movement positive

construct they each For (1997). collected from 19811993, countries transition developing forty-two time point one than span data use We Rate Poverty Inflation Fischer Stanley Easterly William rate. by spanned period over rate, growth, capita GDP, real income) (50 proportion per percentage regress table years. three episode length median line. this rates changes episodes sixty-four present country. sample included years year with starting country, that survey household income initial 50 income: mean linked line a has growth poverty. increase positive C Prob. t-Statistic error Standard Coefficient Variable line) constructed country-specific below households (change POVERTYCH variable: Dependent 14.8 Table omitted.6 19891993) (Poland outlier extreme an when levels sign becomes it although regression, poverty insignificant case, any In before. mentioned reasons for appropriate, more its of level whether about uncertain are we again, Once form.5 functional appropriate most appeal does but level), 10 at significant sign, same have (they log or percent using to robust not is rate tax inflation result The found. also Chen Ravallion as poverty, in change the on effect covariance. and errors standard heteroskedasticityconsistent White 64. observations: Included Squares. Least Method: Notes: 69.48502 35.79547 S.D. variable dependent Mean 0.479727 0.496244 Adjusted R-squared 0.0468 2.029690 30.81613 62.54719 INFTAX 0.0005 !3.701533 1.439615 !5.328780 GROWTH 0.4552 0.751625 9.541762 negative 7.171827

A measures. previous two well-being clear not Wage Minimum Real Poor too employment, entry their facilitating benefit initial an given that, others, among (1983), Lopes byBacha pointedout relationship arithmetic also There inflation. high times during lower easier find will rigidity, downward there If wage. nominal sets usually government wage? affect might How distribution. bottom at that workers group indicator awelfare observed, regulations assuming Nonetheless, unemployment. sector formal increasing off worse poor make could a using (1999), Artecona Rama by collected wages. prices from month) one example, (for lag indexation C Prob. t-Statistic error Standard Coefficient Variable percent variable: Dependent 14.9 Table 14.9. table shown are results The also. increase expect we wage, sensitive if wages; average higher into translate to expected be would so productivity labor rising implies capita High capita. per growth tax inflation on wage minimum real change log regress before. as series CPI same the use We countries. available is it which in years all for data annual of sample covariance. and errors standard heteroskedasticityconsistent White 331. observations: Included Squares. Least Method: Notes: 0.198479 !0.000940 S.D. variable dependent Mean 0.122048 0.127369 Adjusted R-squared 0.0032 2.966504 0.001547 0.004589 GROWTH 0.0331 !2.140478 0.001900 !0.004066 Rate Tax Inflation 0.0125 2.511911 0.016368 decrease pooled 0.041116

Ahigh Fischer Stanley Easterly William part depends result strong points. eight reduce 20 say, to, zero strong: fairly effect implied modest. again regression power explanatory 0.4 wages increasing point percentage one expected, growth, positively show These countries. 38 respondents 31,869 poll international an answers comes primary off. worse makes view supports chapter Conclusions wage. with associated significantly are matters) surprise which models (as its 1983] Lopes Bacha predicted be would [as rate level both Thus, significant. highly The rate. growth equation ran half. cut coefficient magnitude although significant, still tax change between relationship omitted, outlier this When percent. 22 by increased only wage nominal but percent 1000 near was 1987 outlierNicaragua a as mention likely relatively workerare (blue-collar) unskilled uneducated, poor, dimensionsthe rich. more suffer they themselves surveying from evidence presents paper This (1998). Agenor (1998) Romer recentlyby been poor incomes capita per results Similar poverty. increase tending while wage, minimum real quintile bottom share lower tended high found them relate and poverty measures direct inflation in changes impact examine also We inflation. to attitudes effects independent have disadvantaged being of components different that suggesting others, for controlling when significant is dimension Each dimensions. these on advantaged the than concern negative large number top

only further, story Muddling 3. means. sample reported probabilities variables. with vary which probabilities, marginal same estimates coefficient 2. issue. one together classed prices high inflation polls such uncommon It 1. referees. participants, ABCDE Ravallion, discussant, our comments Adams Hughes Claire assistance research diligent grateful authors The Fund. Monetary International or those necessarily here expressed Views 1999. (ABCDE), Conference Annual for prepared was paper Notes Poor Inflation is there then omitted, If variable. right-hand-side using outliers notable are Peru Brazil confirmed: conjectureis well. very line fit dont extreme some that imply 5. 14.2. figure inspection from seen be can as countries, developing transition depend to result 4. crimes. actual prevalence regression crime dummies country between association statistical shows it because anomalous seems outlier This 6. inflation log effect a show not do period this subperiods covering Poland observations other two while poverty, increase A Policy: Wage Growth, Inflation, Lopes. Francisco Edmar, Bacha, 1998. Bank, IMF Paper, Market. Labor Poverty, Policies, Stabilization Pierre-Richard. Agenor, References poverty. in change 1996. April 1594. Policy Bank World Poverty? Rural Reducing at Others Than Better Done States Indian Some Have Why Ravallion. Martin Gaurav, Datt, 2(1991). Activity on Papers Brookings Disadvantaged. the Performance Macroeconomic Katz. Lawrence M., David Cutler, 1992. March 4006, No. Paper Working Research Economic Bureau National Inflation Eliana. Cardoso, 1986. Press, University Harvard Mass.: Cambridge, 180208. pp. Weinberg, Daniel Danziger Sheldon by Doesnt,edited Works What Poverty: Fighting In Poverty. Distribution, Income Macroeconomics, Blinder. Alan and Rebecca, Blank, (1983). 12 Economics Development of Journal Perspective. weak significant large dramatic Brazilian

( 74 Affairs International Economy. Brazils Prospects Fernando. Rezende, 357. (1997), Poverty? Distribution Changes Recent about Us Tell NewSurvey Can .What 1995. 19811993. during Spells on Economies: Transition Developing Distribution Chen. Shaohua Ravallion, 1999. Countries. across Indicators Market Labor Base Data Artecona. Raquel Martin, Rama, 1995),213. (Quarter3 Cleveland Review,Federal Revisited. Poverty T. Elizabeth, Powers, 810823. (1978), Archiv Weltwirtschaftliches Inflation. Costs Effects Real Understanding an Towards Modigliani. Franco 119. 1982), (February 14 Banking Credit, Money, Journal Polls. Opinion Public Unemployment, Inflation, Huizinga. John Stanley, Stability,1996. Achieving Symposium, City Kansas Reserve Federal Stability? Long-Run Pursuing Banks Central Are Stanley. Fischer, 565591. 1996), (September 10 Review Bank World Inequality. Income Measuring Dataset New A Squire. Lyn Klaus, Deininger, Fischer Stanley Easterly William 1996. April 5539, Inflation? Dislike People Do Why J. Robert Shiller, 1997. paper, Strathclyde, University Countries? Post-Communist in Stability Price for Demand Is What Richard. Rose, 1998. November 6793, Paper Working Research Economic Bureau National Poor. of Well-Being the Policy Monetary Romer. David and Christina, Romer, 563576. 1998), July

when 1989, up set Economics, ABCDE, 15 Introduction I 1998, April celebrated was Conference Annual Tenth Economist Chief focuses year Each development. publication flagship Reports. Development World several period, during publications importantWorld reviewing thatby do Ichose economics. years ten past over developments survey back look opportunity provided occasion, speak invited glad written depth. develops direction under outsiders, includes typically presented effect Development,in Challenge entitled Thomas, Vinod headed 1991, topic thinking professions Banks reflect assumed be can it Bank, by seriously very taken is WDR Bank. from always not but generally researcher, recommending to space considerable devoted Report convincing. relevant remain they chapter, summarized are arguments Its strategies.1 best view for development controversy center at been course has issue This sense. eminent makes chapter) this (quoted approach a finance helped and Asia, especially importance underestimated staff Bank thought government Japanese time. long strategies. promotion throughexport particularly development, directing role important an played had state studied, countries eight the of most find did study 1993.2 in Miracle,published Asian East The question, that on particular team senior consensus general

when Squire Lyn Poverty note: Afinal since. years development over controversies center gained only has topic globalizationa challenges with deals paper section substantive last answers. guesses venture WDR,and version updated an affect would 1990s developments how ask Ithen Fischer Stanley I Bank, task essential poverty against fight because interest recommended now. then world facing challenge moral political stress great laid it predecessor, its those volume this economics Poverty.The Attacking 2000/2001: poverty WDR another out brought theBank later, Adecade Report. 1990 given were which examples many measures, anti-poverty direct importance emphasized but Report 1991 described similar strategy a midst Turkey Economy Minister became Dervis, Kemal by headed study for team 2. Bank. at Economist Chief as successor my Summers, Larry direction general under written report The 1. Notes strategy. Bank World associated IMF, Facility) Growth Reduction (Poverty PRGF design embodied are approach that elements Some right. surely is future individuals involvement about message Report,the 2001 of writing surrounded controversy some Although future. own their on decisions making poor society civil involve need Sen, Amartya to due health. toward back economy Turkish the nursing in critical was who and crisis, economic took particular point deep

Fischer Stanley Years Next 15 Years, Ten Past ABCDE: (ABCDE), Conference Annual th 10 speak 9 celebrate help inviting for Stiglitz conference. 10th anniversary Bank, happy brief reflecting without conferences startofthese tothe think if excuse will you subject straying proud grateful how say me Let it. serve who Bank thanks words part thus institution remarkable this economist chief as served much. learned have we whom all Stiglitz, Joseph Bruno, Michael Summers, Lawrence Chenery, Hollis includes that when ago, years 30 than more Joe learning Nairobi. study into foray initial his from back professor, assistant he Technology Institute Massachusetts at student a also but education an only not was It research. subsequent by out borne amply been has development economic liberalization trade centrality on insistence then-controversial whose Krueger, Anne predecessor, tribute pay particular I invidious, be bound is list any Although institution. throughout colleagues friends other Presidency Vice Economics Development staff leadership dedicated Bankthe people devoted talented many so with work World leaders ABCDE; the up setting in co-conspirator director research Tray, de Dennis Steer; Andrew then and Linn Johannes first advisers, associates: closest my of some thank to like particularly privilege want cannot hope start few am chain started graduate pleasure would

Although Oram. Kate Thomas; Vinod Squire, Lyn Long, 1991Millard 1990, 1989, teams Report Development Fischer Stanley vein, go like being: as precisely more described conferences, seven after 1995, evaluated formally series When development. about thinking also those agendas research shape help possible if problems, ideas up open were goals 1990). Tray de (Fischer base country created proceedings, volume first introduction According ABCDE Goals ABCDE. topic turn now advice. policy alter may outside views influencing economics developments recent insights fresh economists World expose interest crucial are issues attention draw practitioners. range 0 analyses. economies transition developing knowledge practical Banks incorporate work, implications world realfor account explore researchers leading induce that suggests Years, Years, Past address, this The processes. economic understanding our enhancing countries member policymaking improve ahead. then conferences nine past record Based satisfied. whole themselves pronounced who evaluators, 1995 by done was That record. review back, look volumes, conference reading Instead assessment. their with I when consensus development on reflect a or event an is which forecasting, rule fundamental violates Years Ten Next ABCDE: title assigned forward, Looking changed. has focus its how and 1990 in Bank future of content the forecast to attempt than Rather both. not but would shall wide To should selective agree will left date

ABCDEs, Years Next Years, Ten Past ABCDE: countries: among out stood importantdevelopments four in1989, place took ABCDE first When 1990s Start Issues countries. globalization implications speculating end end. drawing decade American lost resolution, way crisis debt disintegrate. soon would Union Soviet anticipated anyone hardly late even though Europe, Eastern beginning transition 6 averaging previous over growth with swing, full miracle Asian East 0 1980s. doubled more having China I However, then. it than today relevant less missionis Banks messagecrucial whose successor, companion essential an is Poverty,which 1990: preceded report That friendly. marketas approach itspreferred Development,which Challenge 1991: captured field, economics representative also doubt no Bank, within The elsewhere. America Latin developing policymakers researchers include broadened years few next But 1990). Williamson (see including Washington, official much held were views summarized Consensus Washington Williamsons John 1989 presentation original its At growth. produce to needed policies of many consensus growing was there development, economic about thinking In years. 25 falling been incomes countries African some Indeed, independence. since gains offsetting nearly 1980s, during declined had Africa Sub-Saharan GDP capita per a attained best are poverty in reductions sustained because and time that at Bank the by espoused development for theoverallstrategy toexamine Iwant 1991,bothbecause Report Development World on focus economy. percent, Average will

emphasize: should countries, developing with rests responsibility primary Stanley people. enterprise. climate 0 investment. trade argued also right.1 policy . flourish. competition international domestic let Governments enterprises. state-owned privatize help would countries many In well. reasonably made or work, less governments simply, Put state: market roles providing expenditures; public finance resources mobilizing quality; better infrastructure legal regulatory, administrative, physical, social, building alleviation; planning,andpoverty health,nutrition,family education, investing means this all, Above upon. relied cannot alone markets where those more do need provide specificity further it But America. Latin particularly situations, these all relevant clearly message The agenda? development dominating Africathen miracle, Asian transition, start crisis, debt end issuesthe four relate report messages did How 9) (p. achieved. can little which without foundation, macroeconomic a published, was that time same about At marks.2 question major as remained 1991 Report Development World by defined eloquently so paradigm into fit allthat at howif Asia East been had state role precisely And economies. action guide coun European Eastern reforming growth negative between contrast light salience particular gained issue This preferable. be treatmentmight adjustmentshock rapid very areas what whether over especially debate, room ample provided of sequencing speed sectors, different needed reforms agreement Despite 1991). Gelb Fischer 1990 Sachs and Lipton (see economies transition in reform for strategy the on emerge to began position Investing Improving Opening Getting reappraisal stable practical mainstream [They]

economies, followed development about answer sought 1993, Miracle,published Banks 1996). Bank World 1994 Woo Sachs (see privatization strategy, gradualist its with China, performance stellar tries Years Next Years, Ten Past ABCDE: pursuing succeed hope can countries whether successful makes what case, questionsin further beget questions answers apply generalizations few how is Miracle East results striking one Indeed, economies. Asian high-performing other than (China) Taiwan Singapore, Korea, Republic Japan, pervasive more interventions research. applied investments industries, domestic declining subsidies efforts, protection interventions, sector financial significant Also promotion. measures various came intervention important development. foster ways systematically intervened government eight for story, whole this But technology. absorption encouraged They countries. developing many found agriculture against bias limiting especially bounds, within distortions price kept Further, stability. macroeconomic ensuring capital human investing particularly right, basics getting first concluded The investment. saving high by accompanied was superb allcases mostbut income. distributions equal relatively maintaining also rates growth unprecedented achieving only succeeded had These China. not but Japan included that a through went Kong Hong except economies all Although incentives. provide to firms local contests targets export used cases, some in and, prices world off keyed generally strategies promotion Export councils. ofdeliberation form took cases most In journalists. academics others, business, government, among consultation mechanisms interference, political from shielded procedures whose bureaucracies, reputable and capable including institutions, creation emphasized study the Here approach. later were policies these substitution, import of group similar phase

without volume from away come could reader no But state. positive sufficiently did complaining with reactions, mixed produced stability. threatened they if abandoned or modified limitedand distortions subsidies emphasized all succeeded. systems financial repression credit directed failed, generally industries specific concluded study substitution. import rather focus encouraged where cases varied, investment direct foreign toward Attitudes abandoned. Fischer Stanley a matters institutions quality role important an played had strategies promotion export thinking time at while right, fundamentals getting importance belief I adjustment. speed over remain might controversy 1991.Some view consensus supports Reports,largely Transition excellent Developments Reconstruction for Bank European Market Plan From 1996: studied economies, transition experience they? are What views. emphasis changes some lead 1991should since Reports Miracle Asian East The presented 1990smuch research experiences,reflections,and time, same At turbulence. through buttressed sustained been increasinghas knowledgesmall core hard a 1994, conference addresstothis keynote 17) p. (1995, Brunos Michael words measured characteristically In increases.3 draw can on experiences country data, theory, stock as mature agocontinues years 60 than less born was which economics development field acknowledge also knowledge, our nature tenuous emphasize always we Although founded. well empirically analytically report in what of most but sun, the under new nothing there because is That much. change not would probably message basic its today, rewritten were 1991 Report Development World If Back Looking deal. price and stability macroeconomic achieve to fast very be should it that reinforced great believe

clearer them clearnone elements some be. tell early too far crisis. consensus lessons draw we years coming In possible. quickly proceed longer, take bound which reforms, Other trade Years Next Years, Ten Past ABCDE: go Principles Core Committees Basle system. importance others. but areas certain out get only needs government point underscoring crises, seeds sow area this regulation supervision Weak 1998). Lindgren (Folkerts-Landau Stability Framework IMFs provided details more needed, what summarizing toward way current whether consider interesting strategies. development future any healthy need emphasis strengthen surely Japanwould crisisincluding systems banking weak by propagated has than thedevastation Development.But Systems Financial 1989: Report Development subject was it Bank; World theme I that, Given systems. strengthening urgency It strengthened. regulation, their including systems, domestic until liberalized accounts view held widely reinforce Recent liberalization. account with experience Asias drawn conclusions tothe related answer Miracle.The The expressed repression on views agnostic remains there also There abroad. from borrowing monitoring system regulations prudential strong through controlled be outflows vulnerability But repression. case a lead will crisis system, Beyond countries. done now is as inflows, capital short-term volume pace control measures market-based using for rule necessarily does That survive. not should sectors three these corporate within opacity conclude to likely are We economies. Asian East several in practiced been have that sector financial and business, government, among relations close benefits the of robust long new modification doubt reexamination

Fischer Stanley list now me Let well. labor sectors, three among consultation close merit topics distribution. income urbanization, environmental development, regulation, strategies: State 1997: material excellent draw could analysis Such 1123). pp. 1997, Stiglitz (see performance strengthen types identify have will strategies future any point make supervision regulation sector financial inadequate Asian East parts intervention state strong combination about said been World. taken needed build how development. economic role directed creation, bureaucracies emphasizing their began economies individuals knowledgeable technically possessed already which many economies, transition experience from insights further be should there But time. for struggled economics institutional question government. efficient an system education are institutions these Report.Among lower.4 much training technical overall where countries betterespecially do whether see why out find need We difficult. proved system, tax Russia, including, The quickly. banks, central as such institutions, some develop possible made base capital human This system. governance, meaning one is well government run ability a more deserves corruptionalso to relates it meaningas other its in Governance 1990s. early since attention increasing gained has that 0 strategies. development on 1992: World and environment, of issue the with wrestled 1991 Report Development continuation few Enough Changing By market topic

elsewhere. subsequently 1992 done work draw certainly efforts attention, environment topic. devoted Environment Years Years, Ten Past ABCDE: attention deserves surely growth population interacts 1979.Urbanization 1978 Reports,for second first both length some discussed was issue urbanization. problems by struck must countries capitals visited recently who 0 Report. subjects The equitable. making ways find requires effort, sustainability well justice, Social unequal. very America, Latin especially developing many income distribution or surprises would 1991 Report Development update inclusion their unlikely it field, economics development elsewhere Bank extensively studied been cited I Next Globalization message. change only itwill before crisis peso Mexican crisislike financial Asian East even reforms, current with stick Thailand Korea Republic 1990s.If extraordinarypace an at accelerated markets time, same At come. decades economy shape production, globalization including globalization, process part This active. becomes Organization Trade World as diminished arrangements trading regional for ardor since continueparticularly likely is trend this inveigh, rightly regularly we against obstacles Despite trade. open ever become have economies most and GDP, than rapidly more increased has trade world years 50 past Over globalization. changes major produce could that a cause probably will out, ruled be not should which countries, industrial rates interest increases Still, flows. capital international of volume the on effect markets. emerging to flowing funds in Anyone future turn subject passing slowdown

I economies. but governments, country industrial needed actions globalization by posed risks deal To gradually. less or more liberalize, But controls prudential strengthened is domestic as only place take gradual liberalization market Capital systems. financial policies strengthen participate Countries crisis. after flows less, not more, Thailand Korea capital. foreign markets open continued Argentinahave crisisMexico tequila hit hardest Two not. most these out stay want they conclude some Although power demonstrated crises Asian East Mexican Fischer Stanley produced recently IMF behavior. sector private aspects other markets, securities governance, corporate standards, accounting envisaged practice Codes data. statistical constitutes Standard Dissemination Data Special IMFs Similarly, supervision. behavior system banking standard agreed an Principles Core Committees Basle The place. put developed should avarietyof notion system: strengthening about discussions recent aspect one focus develop asked been has codesand own introducedtheir Zealandhavealready New Australia transparency fiscal ofgood provide will codes Such policies. monetary respect with practices good cooperate, creditor regulators bank If flows.5 guide performance economic their improve implement can rules set a certified. monitored be implementation that require course, Of observed. are such extent based emerge could countries developing in investments for weighting risk macroeconomic way this In markets. capital international to access have governments and corporations which on terms determine help also would standards the of observance world code comprehensive rational

maintaining desirability arrangement rate exchange optimal question proceeds, As markets. discipline using improved regulation market andfinancial transparency, corporate policy, Years Next Years, Ten Past ABCDE: and succeeds euro predict simply let short, cut To known. issues arguments fore. come again into coalesce run long Keynesian eventuallyin could turn areas. trading associated blocs currency large several development see likely towe lacks accident-prone II. War Depression Great wrought destruction emerge continuing is sector, change technological as flows trade liberalization by spurred that, days early are These countries. African Sub-Saharan needs thinks one Here assistance. financial capital access may Some capital. human build their strengthen help They fronts many actions take developing Most standards. international meet policies institutions improve have them some changes, these deal equipped well be advanced most Although economies. economy global changes profound bring promises markets goodsandcapital globalization ongoing The currency. with conclude me Let Conclusion policies. right follow countries for so do continue will prosperityand growth economic shared, uniformly though sustained, unprecedented brought has system this forget not should we time same at But safer. it economies individual internationally architecture on work to need We resort. last lender and authority For I published, 1991 Report Development World after even time, growth, of elixir was there a make would included if that report, in listed setofpolicies the from ingredientmissing an national expect single regulatory confession. believed magic miracleeven

miraclepossible. Asian East rather, Or that. believe longer I it For work. hard It ingredient. missing task, arduous make years, over right things doing people many theory, trade especially economics, branches draws although development, concerned fundamentally as thought can economics foundingfathers other Smith Adam Although 3. (1990). Wade See wrong). prices (getting incentives market distorting systematically fast contributed government Republic arguing institutions views challenges (1989) Amsden 2. institutions. financial international industrial by made could countries developing growth contributions analyzed also report 1. discussions. helpful andVinodThomas Pleskovic grateful Iam Notes grow. development wait had work empirical Systematic to dated be probably should Issues Development 1995. Michael. Bruno, Press. University Oxford York: Industrialization.New Late Korea South Giant: Next Asias 1989. Alice. Amsden, References 1940s. Eucken Walter with ordnungspolitik,associated notion German part performance economic improve would rules such that idea The 5. limited. is state capacity when basics focusing suggests 1997,which Report discussed are issues These 4. 1950s. in began which a Toward 1998. Lindgren. Carl David, Folkerts-Landau, 106. 91 (fall): Perspectives Journal Transformation. Socialist Process The 1991. Gelb. Alan 1989.Washington,D.C.: Tray, Fischer Stanley Introduction. 1990. Tray. de Dennis Stanley, Fischer, Report.London. Transition years. Various Development). Reconstruction (European EBRD Bank. D.C.: 1994.Washington, Economics Development on Conference Annual Bank the of Proceedings eds., Pleskovic, Boris Bruno Michael In Questions. Open Debates, Old Lessons, New World: D.C. Washington, Fund, Monetary International Survey. and Economic World Stability. Financial for no know long matter country field database, Changing Framework

a Creating Sachs. Jeffrey David, Lipton, Years Next Years, Ten Past ABCDE: Report.NewYork:Oxford years. .Various Oxford York: New Report. Research Policy.APolicy Public Growth Miracle: 1993. Economics. ofInternational Institute Washington, Happened? Has Much How Adjustment: American Latin ed. John, Williamson, Press. University N.J.:Princeton Industrialization.Princeton, Asian East Theory Market: Governing 1990. Robert. Wade, Bank. 1996.Washington,D.C.:World Economics Development Conference Bank World Annual eds., Pleskovic, Boris Bruno Michael In Development. Government Role The 1997. E. Joseph Stiglitz, 101145. (April): 18 Policy Union. Soviet Former Europe, China, Reforms the Factors Structural 1994. Woo. Thye Wing and Jeffrey, Sachs, Institution. D.C.: 1.Washington, Activity Economic on Papers Brookings Poland. of Case The Europe: Eastern in Economy Market

points: key There countries. developing poverty, relationships on views my represents because included chapter This 16 Introduction 0 growth. economic sustained requires povertyreduction continuing I well, which policies, anti-poverty directed beyond context, Indian In policy. by part large determined distribution income happens reduction; between relationship inevitable nothing achieved chapter. detail greater developed are arguments digits). double running (inflation reduction reform; agricultural flexibility; market labor increasing capital; human investing particular: a still it reduce failure throughout high very remained deficit budget government half second momentum lost then crisis payments balance following accelerated process reform better. done have could India Nonetheless, reduced.1 substantially that is consensus increasingly but decade, poverty happened what about controversy some been has there conflict, data sets two Because place. took system financial and industry deregulation Some decade. during digits single low declined inflation capita. 3.7% or annum, per 5.7% was 1999 to 1991 from GDP real of rate growth average The 1990s. the in deal management deft Fortunately, Sustained identify great problem.

a It future? What crisis. Asian into dragged being avoid enabled controls, capital with along policy, exchange monetary of Fischer Stanley 1999. mimeo, Princeton, India, Poverty Prices Tarrozi, A. Deaton Angus 2002; Economics, International for Country,Washington,D.C.:Institute No Theres Imagine Bhalla, Surjit 1. Note reach. much very is aspires, which to rate annum per percent 78 achieve thereby situation, strengthening process reform intensifying by yet better do could it For policies. fiscal and structural its both shortcomings despite 1990s the in growth high such achieved India that encouraging sense

16 Reform Economic It Fischer Stanley exactly almost Bombay, again indeed pleasure presenting honor deficits1 budget excessive dangers then topic lecture begin opportunity seized crisisand surmounted rapidly creditors, bilateral multilateral other IMF backed were which Government, actions resolute Thanks history. crises financial serious most oneof thegripof was later Ayear sound. totally issue on found Bank Reserve Governor report happy as potential its fulfill country this enable deepened, sustained if that, If success. emerging Indias participate eager have investors foreign competitive, dynamic become industry restored, growth robust, much now position external The before. stronger emerged India crisis, since Four economy. global power a future, change possible because understand will you achieved, been rather done, needs still what A years. achievements appreciation When here. live who those than outsider evident more may economy Indian and economic approach changes by impressed greatly fail cannot four after returning last, here Now Bank. World with I Nothing stability. deficitsendanger largefiscal lecture, previous of message re-emphasize natural be would it Fund, moved macroeconomic to key is policy fiscal that views my changed has years five last the in learned Poor great had public am process major emphasize lack visitor

time This poverty. attack progress if essential stability macroeconomic stability, Fischer Stanley taken should advantage add then decisively, reduce sustained first, topic: pursue reasons there However, hold. permanent takes process growth ensure needed reform, sector financial deregulation, continued privatization, them among policies, structural supporting describe go second, is; message correct crucial againhowever thing same saying justify enough India speaking privilege have currency, devalued after months three point, this Alternatively, Joshi. Vijay Dr. Lecture Annual Day Commencement Bank Exim years last out laid convincingly argument third, audience; accepted increasingly known well are arguments respects most been stating views my summarize me let be, might as Interesting for Mexico lessons draw occasion use Mexico, suffered setback Despite debt. government structure by compounded were 1994, pursued policies credit because part unavoidable, became devaluation confidence on effects adverse GDP. percent eight remain expected was reached deficit account current overvalued so become rate exchange allowing mistake critical made deregulationbut domestic aspects privatization NAFTA,in entering trade liberalizing accounts, fiscal balancing reformerin a devoting IMF learn surprised not You markets. global emerging flows capital private power speed remarkable illustrates also case Mexican economies. histories individual countries reflect variations albeit growth, development road only be continue will that doubt no I topic Mexico. in us before itself cast has shadow whose century, first twenty world with deal members help it enable disposal instruments role its adapting thinking amount whether posed often is question The reform. economic to approach market-oriented economy political of heart at lies Poor, the and Reform Economic today, chosen period would do suspect could model considerable

contains which particularly everyone. virtually well-being objective ultimate legitimate, entirely concern person. common benefit, or benefitted, reforms such Poor Reform Economic This income. inequality preferably poverty, reduces ensure how rather versus question India. were time one at countries Asia elsewherein attained been levels most raise redistribution amount India, low GDP capita per When growth. continuing without bulk great living improvement permanent no can sustained achieve must policy aim prime correct. focus get important poor economic talking In lowest. rank standards nutrition sanitation, literacy, where people, poorest worlds portion pointed others Kuznets Simon Early distribution. reduction, adjustment, among links about learn have still world, governments, agencies, international we, much issue, a was think economists leading development, stages initial for support generating well increase, population rate down brings base resource approach possible. people many quickly, felt are reform benefits so policies sequencing mix right identify challenge The oriented. outward capital, human improves employment, generates broad-based sustained, is, growth, quality high reduction key indicates of body Agrowing poverty.3 reduce improve also educationthat secondary primary investing as policiessuch enhanced be likely but with, compatible only not rapid suggests evidence important, More policy.2 by part large determined during distribution poverty to happens what distribution, income relationship in inevitable nothing is there that clear it made has research academic further decades two past the over progress dramatic Asias East both However, equity. and growth between substantial complex worsening tradeoff

Thus, reforms. Fischer Stanley framework, general Within continent. countries created been createdand rapid circle investment First,the strategy. relevant lessons This people. make I here Finallyand population. majority standards living improving boosting critical reform Third,agricultural restructuring. industrial process facilitates generation employment foster marketshelps labor Second,flexibilityin growth.4 sustained rapid, achieving key resources human development policy: drive imposes inflation stability, price establish made should effort concerted macroeconomicsa a play also schemes briefly note me let lessons, four to moving Before potential. Indias saps poor burden activities. its misdirecting or little, doing together) state (central services, health provision education infrastructure, including sector. private creative potentially stifle far, reach Government theIndian tentacles activity, economic regulating particularly areas, certain In misleading. highly certainly it partial, best But yes. be would case answer expected big, too whether asking posed often government issue The Resources Human Developing distribution. income improves reduces ensure help can policy growth proaspects those chapter this focus economy, constraint resource overall by limited necessarily is scope their because but adjustment, costs reducing important are they notbecause detail, any net safety social relief direct other these discuss not Iwill reform.5 benefits spreading alleviation poverty at aimed measures several includes 15, March on announced 1995/1996, for budget Indeed, schemes. such successful most of many creating pioneered has India that and poverty, against fight the in role virtuous will country slogan, fact turn heavy

capital human accumulating demonstrated consistently Empirical Poor Reform Economic over resources considerable countries done. can this how shows efforts. own their through poverty escape them empowers least-advantaged healthcare opportunities Extending productivity. definitely improvements formal acquisition standards. living sustained rapid, for implied rates,which fertility adecline fostered standards health Improved GDP. such raising without be real off, take began soon as because important. was so do decision early time. period As schooling. budgets 8090 devoted successful all Singapore, than spending.Other structure importance experience Asia from lesson principal second The Asia. typical pupil levels achieve could growth, economic slower for, provide populations growing faster larger However, more. or share same developing other Many education. public on GDP percent 3.7 average an spent economies Asian East 1989, In pupil. per spending allowing again thus population, school-age benefit important One achieved. being close is universal goal are school secondary primary attached always India education.6 womens returns indirect direct high relatively elsewhere Bank World research recent therefore, surprisingly, Not reinforcing. self been process whole equality, income both with increase rates enrollment education since Moreover, equality. promoting instrumental were they growth: contributed policies These rate. growth population lower helped environment learning home enhanced also but force labor female level skill increased only not has which in gap gender the narrowing a shown have attainment educational of indicators key many and education, to priority higher budgetincorporating years This improvement. prerequisite prolonged result, rapid

education emphasis greater Fischer Stanley there matter education. returns direct country but individuals, deny they because only critical Low average. Asian compared GDP, relative less, percent 15 some spends problem Part inequalities. exacerbating andpossibly preserving much derive off better Consequently, others. women poor available readily as opportunities addition, In years. 30 last over declined actually school completed enough, remarkably education: mainly reflects improvement Asia. East behind far lag literacy rates enrollment remains fact Yet commitment. Governments indication But facilities. medical best its high achieved India regard told can story Asimilar reduce help planning, women, education, improved Both growth. population lower growth, economic quality India, growth capita Per rates. fertility attainment female between link a with those resisted undoubtedly patterns spending reorienting Moreover, reform. educational economy political constraints both view easy not basic resources redirecting Increasing areas. expanding rapidly facilities extendingsanitation water; drinking clean access broadening children; particularly nutrition, improving attention increased from benefit would standards Health planning. family including healthcare, preventive allocations inadequate leaving hospitals, urban healthcare curative absorbed health on outlays budget proportion politics group pressure accomplish to difficult most proved has change budgetary that level decentralized at is it Unfortunately, healthcare. education public secondary and primary all virtually provision for responsible are states The government. of system federal Indias by complicated be also will Change structure. existing the in interest further strong vested

states spending disparities wide influence. greatest their Poor Reform Economic therefore generally, governance improving relations, center-state Reforming play result pressure. union or leadership, public legislation, than rather supply interaction largely countries Wages countries. Asian East illustrated well point growth. quality achieving importantly contribute More Markets Labor Making strategy. health education a them fact Indian protect designed policies paradoxically, Thus, conditions. changing response back cut can excess when whether uncertain they if new take want not do Firms outcome. behind factor important an surely workers, retrenching before permission government obtain firms required Act), Disputes Industrial (the mid-1970s legislation passage rapidly. grown production intensity capital while mid-1970s, since stagnated sector private organized Employment different. very experience Indias standards. living rising supporting again intensive, skillgradually become pattern allowed that healthcare training, vocational education, levels reinforced cycle The wages. employment, demand, enhanced turn which growth, output rapid contributed process This technologies. labor-intensive more use investment, higher sectors, across workers allocation efficient encouraged have Flexible circle. virtuous mainly determined are conditions work wages models, these In unemployment. persistent with associated phenomena market other rigidity wage real explain markets labor model insider-outsider on rely economists European percent. 18 about be to estimated is natural and percent 23 exceeds rate unemployment current the where Spain notably most Europe, in observed been also has unemployment, rates generating costs firing high of pattern, this course, Of opportunities. employment valuable foreclosing by consequence. role growth-oriented powerful disservice

a protect policies present India, too pattern This employment. terms changes from benefit potentially outsiders by than rather continue, likely whose insiders Fischer Stanley 8 (about segment visible highly A area. done what suggestions general venture me Let trap. avoid important confirms. experience European as shocks, external technologies, conditions, changing response economy adjustment with interfere rigidities market Moreover, overmanning. substantial resulting workers, hire public pressures generate resources allocation inefficient an result Segmented costs. economic direct have markets segmentation Nonetheless, true. extent course That overestimated. formal restrictions costs flexible, large so sector because argued sometimes conditions. working their protection legal minimal receive where sector, informal wage lower employed majority vast against discriminate they Conversely, total). percent 80 some clear: reasons sector. farm Indias plague continues productivity low tackle must poverty inroads significant make growth rapid achieve strategy Any Agriculture Reforming retrenched services placement retraining effectively more deployed Fund Renewal National available funds service); year per wages days 15 now (it raised could laid-off compensation minimum respect, latter this In support. adequate given are jobs new look need who workers uniformly applied legislation fair that ensuring focus Government workers. management between negotiation bilateral free left decisions such Instead, occur. can it before reduction force any vet required be longer no should It markets. labor in government role change is element key The labor. redeployment support and relationship, employer-employee of flexibility the increase simultaneously: fronts two on move to needs India for policy employment effective small,

provides reduction. end do benefits Further, wages productivity, employment, boost poverty combating means direct Thus, GDP. its percent 32 accounts force labor 70percent employs Farming activities. engaged predominantly where areas, reside poor Poor Reform Economic output increasesin sharp generating farm rates achieved Asia countries successful most coincidence no It economy. rest foundation sectorincidentally, extremely radical with started years 15 last growth spectacular Chinas output, stagnation recent notwithstanding notably, Most wages. rising prices stable a pursued China view qualify should below well are yields inadequate infrastructure Moreover, products. external internal on controls regulations, regime, trade protected Indias created distortions significant remain there Revolution Green adoption success despite However, India.7 famines ending contributing production, boosted country across varieties seed high-yielding fertilizers, irrigation, spread The decades. three past over development agricultural resources considerable devoted has reform. effective farmers, know-how inputs technologies, new disseminate programs infrastructure, rural investment sector public by enhanced also was productivity Agricultural overvaluation. rate exchange protection industrial through indirectly taxing refrained important, Equally economies. developing other common been have credit allocations pro-industry controls, price food taxes, avoided generally They agriculture. expense at industry promote did they is economies Asian successfulagriculturaldevelopment for reason Abasic income. of distribution the improve to help poverty, reduce growth, economic support would agriculture progress that true remains it But India. duplicated be not could reforms rapid such Asia, East those from differ India in patterns usage and ownership land Because strategy. reform strong context fact gradualist

2 Asian East growth compared decades, two past over year percent 1/2 just average grown farming Indias labor reasons, part levels. Fischer Stanley areas cropped intensification through come have production food increases Most year. per Here on? head especially poverty, tackle thereby development promote What areas. poverty persistent contributing wages, farm constrained Low sustainable. which fertilizers) irrigation, power, (for costly extremely supported country, regions again once I disadvantage, absolute at Act, Commodities Essential under 1950s up set were Many trading. forward futures ban safeguardslifting andwith industries, agro-processing ending items, many exports imports abolishing procurement, public compulsory elements remaining phasing commodities, all virtually storage trade wholesale requirements licensing eliminating involve This products. commerce on controls pervasive dismantling 1991by industrial liberalizedas should First, requirements. three There growth. productivity inhibit producers reduce that web complex untangle is key The suggestions. general only venture a stronger much are conditions basic where India seems longer approach an Such shortages. acute prevent necessary considered was supply agricultural management centralized when par infrastructure, rural in investment increased resources budgetary redeploy subsidies these out phase productive far would it issue, this dealing difficulties political doubting no can there While addressed. need farmers for electricity and fertilizers subsidized heavily by implied distortions enormous addition, systematic. more link but levels, international prices procurement raising toward made been has progress years, recent In support. infrastructural adequate providing while realities, market with line into brought be needs farmer facing incentives price of system Second, well. job the do to exists sector private few am comparative shall time robust

In commodities. some increases imply volatility raise may supply agricultural trade international markets role Increasing system. again look necessary will Third, systems. credit rural strengthening market, products get needed facilities storage transportation ticularly Poor Reform Economic do not inefficient extremely systemis distribution public present However, protection significant provide does prices subsidized foodstuffs essential certain available making India, ensure overhauled needs system poor. food cheap delivering job good it poor, incidence heavy because all, cruelest as referred sometimes Tackling needy. truly targeting more such for reasons many There growth.8 between association negative demonstrated has (1993), Fischer including research, Much poverty which at slows growth directly also effects, distributional adverse Beyond currency. form held is savings financial limited their Moreover, indexation. minimal economy an terms nominal set are wages Their inflation. vulnerable particularly seem India poor The burden. bear who those most invisible extent establish reforms institutional measures, these complement To supply. enhance demand aggregate contain both measures requires program reduction effective An growth? on impact term shortminimizing while down brought can How reduced. fought be should further, rise threatens often purpose, useful no serves single upper or digits, double in Inflation growth. productivity rate thus and investment, lowers system), tax interactions its through part (in allocation resource efficiency reduces uncertainty, creates that them among relationship: a with framework reduction. inflation of costs potential the reduce would stability price to commitment country much considerable policy-making clear

money affect inflow foreign allowed but years, recent these resisted successfully has RBI The RBI. financing pressures reduce First, consolidation. substantial upon crucially depend growth off choking Reducing stabilization. price successful lynch-pin supported demand Fischer Stanley allow rates pressure ease adjustment Second, inflows. thecapital theeffectsof offset more authorities themonetary give thedeficitwould reduction A sector. available made resources share promote tend rates, interest real raise it However, run. short down bringing could fiscal supporting without monetary combination side, supply On adjustment. sustainability confidence foster help capital human necessary room leave expenditure Well-designed essential. programs spending government improvements reforms tax continued particular, reforms. durability direction establish unambiguously measures are What decline.9 begins ratio debt-to-GDP that ensure deficit reducing continue how question into deeply go occasion not This growth. sustained needed exports investment discourage thus appreciation, rate exchange a economy growing structure institutional establishing target policy explicit an inflation making importance stress me let Finally, capital. private involve ways effective finding require will this Government, by faced resource view In rapidly. modernized need roads) ports, supply, power its (particularly infrastructure Indias importantly, most Perhaps help. also foodstuffs processing for facilities improving products agricultural trade on restrictions internal Lifting reserves. international level present of advantage taking liberalization, import further given be should priority high pressures, such relieve To pressures. inflationary add would which ahead, period the in constraints capacity and bottlenecks lead to likely is system distribution inefficient greater tight rapidly relatively

demonstrates Poor Reform Economic A stability. commitment message main up, sum To Remarks Concluding policy. monetary anti-inflationary independent an run ability banks enhance trackwould far so implementation implementationand Its regard. this Government financing hoc ad RBIs 1997/1998 out phasing regarding Finance Ministry Bank Reserve agreement years Last autonomy. increase legislation governor bank central finance minister agreements target policy publicized included Innovations Kingdom. United Zealand, New Canada, Chile, inflationincluding rates moderate tolerating years after stability price achieve recently acted have countries a provided has 1991 since pursued program stabilization The growth. increases as time same at reduce rapidly reform economic you with leave like rate. increasing sustaining stability, macroeconomic foundation reform,conducted sector financial privatization, liberalization, industrial trade areas structural deepened Continued Asia. East achieved reduction progress sustained rapid emulate India required still bold further India, transform beginning is base I income, distribution improves reduces directly help can decisions policy those on focusing In enormous. benefits long-run their but changes, these effecting involved difficulties political profound underestimate way any not essential But workers. redeployed for nets safety effective provision subsidies food targeting appropriate through run, short affected adversely might who disadvantaged poor protect taken are steps adequate that ensure important be also will it course, Of reduction. poverty between linkages positive strengthen to serve all would reforms These inflation. down bringing agriculture, developing flexible, more markets labor making by growth employment encouraging spending, government of quality the improving general in and capital human up building areas: four emphasized clear number sound do

I 1995. 27, March Bombay Lecture Day Commencement Exim tenth presentation prepared was chapter Notes growth. economic quality high achieving reduction poverty sustained ingredient Stanley contains (1994) Alesina 2. (1990). appears lecture substance 1. comments. helpful Zagha IFC Pfeffermann Guy assistance, substantial IMF Parker andKaren Hemming, Richard Chopra, Ajai Collyns, Charles Narvekar, R. P. to grateful include measures Specific 5. Lecture. Memorial Lakdawala 1994 Sens convincingly point 4. Tabellini Persson 3. literature. been never has there Sen Amartya by known wellmade fact striking account into takes contributing qualification 7. Summers See 6. households. poor insurance life subsidies schemes, housing rural spending larger poorest, for program assistance a Bank. mimeo, Growth, Long-Run Crises Inflation Michael, Bruno, 363394. (December), Economics,32,3 Monetary Journal Attainment, Educational Comparisons International (1993). Lee Wha Jong Robert, Barro, (April). Delhi Restructuring,New Issues Responses Institutional India: Sickness Industrial Goswami Omkar Gangopadhyay, Shubhashis Chaudhuri, Datta Tamal A., C. T. Anant, 351371. Review,8,3, Economic Bank World The Literature, Recent ofthe Survey ACritical Growth: Economy Political The (1994). Perotti Roberto Alberto, Alesina, References (1995). Patel Buiter see stance, fiscal Indias sustainability analysis an For 9. open. remains rate low relationship inflation-growth issue so (1993), Fischer reported those from different is result This percent. 40 of excess in rates at only significant becomes growth inflation between association negative the that claim (1995) Easterly William Bruno Michael research, recent their on Based 8. 1989). Sen, and Dreze (see am survey social famine democracy

( Politics Faculty Cambridge, University mimeo, Adjustment Structural Stabilization Aspects Budgetary (1995). Patel R. Urjit Willem, Buiter, Poor Economics,32, Monetary Journal Growth, Factors Macroeconomic Role The Fischer, Press. Action.Oxford:Clarendon Hunger (1989). Sen Jean, Dreze, January),144. Review,7,1( Inflation, Moderate Fischer Stanley Rudiger, Dornbusch, 3 Review,84, American Growth? Harmful Inequality Is (1984). Tabellini Guido Torsten, Persson, (December). Delhi New (ARTEP), Promotion Employment Team Regional Policies,Asian Poverty Employment, India: Organization Labour International India. Export-Import Bombay: Lecture Day Commencement Exim Annual Ninth India, Reform Policy Macroeconomic Vijay Joshi, 127142. (July), Observer, Research Constraint, Budget Government (1990).The Easterly William D.C. Policy,Washington, Public Growth Economic Miracle: Asia East 45. number paper EDI Bank World Countries, Developing Women Educating People: the All in Investing Lawrence Summers, (November). 58 No. Paper Economics, of LondonSchool ResearchProgramme, Economics Development Capability, Human Opportunity Social Liberalization: Beyond (1994). Amartya Sen, Bank,(September). Reform,World for Agenda An Agriculture: Indian Liberalizing (1993). Gulati Ashok and Gary, Pursell, 600621. January). (December),485512 June),

293 Laurence, Ball, 41 Plan, Baker 393 260, Martin, Bailey, 110 2627, 15, 13, 11, 79, Walter, Bagehot, Edmar, Bacha, 411 407, Azerbaijan, 285 275, 273, form, (AR) Autoregressive 199200 Autonomy, 165 151, Australia, 7576 promotion trade 8687 policies structural reform 8486 standards program 91 prevention 8184 origins 8790 72, hazard moral 7779 loans 118 117 115, 9293, 87, liberalization 88 investment 7375 cooperation economic international 127 provision information 503517 India (IMF)) Fund Monetary tional Interna also (see 7294 role IMF 149 funds hedge 85 81, 9194 architecture system financial 71 Feldstein 144 rate exchange 491492 485, Miracle East 7677 fluctuations currency 7172 lending conditional 494, 493 129, crisis, Asian 115 76, ASEAN, 74 reports, IV Article 481 Raquel, Artecona, 410411 Armenia, 151 transparency effect tequila 349 344, inflation moderate 378379 365366, 361362, hyperinflation 224 peg hard 366 144, in, crisis 245 241242, 227, Argentina, 73 APEC, 401 Angola, 297301 nominal, Anchors, 385 Institute, Enterprise 223 Association, Economic American 313n52 Steve, Ambler, 275 Alberto, Alesina, 440 418, 415, Albania, 510513 Agriculture, 332333 Aggregation, 208211 charters 199201 167, Accountability, 485497 Reports Union Soviet 490491 treatment shock 489490 America Latin 488489 goals 495497 globalization GDP 489 Europe 489492 issues development 496 and, Committee Basle 492495 of, accomplishments 498499 Economics), Development on Conference Bank World (Annual ABCDE Index

surveillance solvency Reform) 135162 119, reform 481482 wage minimum real Poverty) 461 121 sensitivity policy Growth) 118120 growth movement 1920 mobility Management Capital Term Long 1012 liquidity Liberalization) 115 liberalization 715, 496497 118120, 149155 institutions financial international 151 (IAIS) Supervisors Insurance Association 366 rates interest 368 356, 333334, problems inflow 234235 trinity impossible (IMF)) Fund Monetary International (see 149 funds hedge 139143 volatility flow 235 233, 223, 123, EMU 143 countries market emerging of, use controls, 50 callable, 160 Committee 146147 bankruptcy 7194 130132 amendment account Inflation also Capital. Forest, Capie, 515 198199 192 bias inflationary 102 239 floating 244 dollarization 210 186187 33 Michel, Camdessus, 301 260261, A., Guillermo Calvo, 9596 26, Charles, Calomiris, 305 255262, Phillip, Cagan, 327382 David, Burton, 303 Ariel, Burnstein, 184 Arthur, Burns, stability rules feedback money 208 200201 accountability 171 Bundesbank, 440 415416, 245, 241, Bulgaria, Asian Bubbles. 442449 standard, as 444 convergence conditional 453 433, Brussels, 392 391 383, 266, 257, Michael, Bruno, Kingdom United See Britain. 234 105, 100, 7273, 3738, system, Woods Bretton 257 Constantino, Bresciani-Turroni, 474, 464, poverty 476 459, Real Plan 349 345, 336, 329, 327, inflation moderate 185 indexation 103 IMF 378379 361366, hyperinflation 144 110, 84, in, crisis 233 227, 158, Brazil, 241 Bosnia-Herzegovina, 380n9 361, Bolivia, Alan, Blinder, 462 Rebecca, Blank, 255 Death, Black 391 Eytan, Berglas, 240241 arrangements, rate exchange crawl) band, (basket, BBC 496 160, 148152, 144, Committee, Basle 447 334, 194196, J., Robert Barro, 199 171, France, Banque 147 136137, Bankruptcy, 172 166, Japan, 391392 386, Israel, 15 13, 11, 79, (LOLR) resort last lender 211 and, charters 171172 169, 165, England, 191 Canada, of Bank 240 Mexico, de Banco 398399 Baltics, Index 520

481 478, 407, 177, (CPI), price Consumer 106 States, Independent Commonwealth 374375 348357, 343, 324, 233 Colombia, 289290 Timothy, Cogley, 401 398, process transition 476 474, 329 491492 485, Miracle East 236 233, China, 515 476, poverty 372373 349, 347, 342, 338, 337 329, 327, moderate 208 charters 237238 165, 159, 108, Chile, 480 Shaohua, Chen, bank, central Charters, uncertainty supervision Reform) 171172 power 173177 curve Phillips mandates 243 815, (LOLR) resort last of lender 149155 institutions international Inflation) 177195 166168, 184185 indexation 195211 government 170173 functions 227228 floating 136 (FSAP) Program Assessment Sector Financial 165166 ECB 169 purpose early 171 developing 242243 currency 334335 credibility 1415 ambiguity constructive 14 8, confidence 148149 144, Committee Basle 167, 218222 banks, 201 inflation short-run 208211 structure charter modern index GMT 201208 on, evidence empirical 195201 discretion 199200 autonomy 199201 accountability (CBI) independence bank 433434 wages 449452 effects socialism privatization 454n18 436439, in, convergence 182, Treaty Maastricht 438439 liberalization 440442 combining indicator 433436 gaps income 436 431433 levels development 455456 453, 430, 429 (CEE), 462 Eliana, Cardoso, 313n52 Emanuela, Cardia, 130 122 issues management system 127128 surveillance 150151 reform 120122 of, pros/cons phasing 128 countries OECD framework policy macroeconomic 127 provision information (IMF)) Fund Monetary national Inter also (see 130132 75, IMF 123 GDP 129130 need financing 124125 strength sector financial 123124 rate exchange 125126 use control 438 (CEE) Europe Eastern and Central 118120 growth movement 133 130 amendment capital 442449 Brussels 115118 9293, 87, crisis Asian 496 439, 421, 420 418, liberalization, account Capital 182 distribution wealth 333334 and, sustainability 521 Index

(CEE)) CEE 398399 Baltics 489 ABCDE countries Specific Europe. 242, 232, Euro, Ethiopia, 376377 357 346, 105106 IMF 245, Estonia, 425n14 regressions, series time 279 seigniorage, markup, price 289 median 288 lag, mean Levine-Renelt 331 288289, 285, 452 447, 444, 276 deficit, fiscal 447 growth, Barro 285 form, autoregressive Equations 230 Plus, Bond Markets Emerging Salvador, El 372373 347, 342, 337339, Egypt, 471473 468469, 463, Education, 344, 110 crisis 244 241, Ecuador, 273, (VAR) autoregression vector process) Transition 401427 263265 matrices 304306 in factors ten top curve) 284285 267275 inflation, money 284290 operators lag 312n38 310n9, 257, Laffer 302 rules inventory-type Hyperinflation) also (see test causality Granger 431456 (CEE) Europe Eastern and Central 255262 studies Cagan Econometrics 459484 poverty 422 336, 294, 266, William, Easterly, 491492 485, Bank), (World The Miracle, Asian East bias inflationary 192195 inconsistency 262265 high Dynamics 275 Allan, Drazen, Moderate inflation. Double-digit 336 329 327, 323, 263, Rudiger, Dornbusch, 246 243244, 233, 227228, Dollarization, 331332 wage 366 Slovenia 293294 in, variables real 294 curve Phillips 260261 367 313n51, growth 244245 224225, rate exchange Disinflation 255 Diocletian, 487 Dennis, Tray, De 232 230, Denmark, 197198 Guy, Debelle, Gaurav, Datt, 439440 433, 415, 410, 105, 84, Republic, Czech 462 M., David Cutler, Money See Currency. 420421 418, (CLI), index liberalization Cumulative 380n5 202205, Alex, Cukierman, 401 Cuba, 415 process transition 345 378379 365366, 363, hyperinflation 440 422, 411, 361, Croatia, 334335 260, Credibility, 385 (CEA), Advisers of 418421 407, (CMEA), Assistance Economic Mutual Council 374375 348357, 343, 329, 324, and, inflation moderate Rica Costa 160 150, 144, Committee), (Basle Supervision Banking Effective for Principles Core Index 522

182, Treaty Maastricht 123 Israel 306 272, 268, 81 205 index GMT 276278, deficits fiscal 247, 241, 261 403 time chronological 436 119 movements capital 442449 Brussels 85 489 ABCDE Product), Domestic (Gross 148 G-22 148149 reform 73 62, 44, 4041, countries, G-7 173175 curve Phillips 212n19 model Lucas 267 mechanisms 195 rule growth constant 173174 168, Milton, Friedman, 386 Jacob, Frenkel, 199 239 293294 210 208, charters 257 255, assignat France, 391 Mordecai, Fraenkel, Floating. 385386 Stanley, Fischer, 276278 seigniorage 281284 combining indicator 276 defined, 440442 (CEE) Eastern 310n10 deficits, Fiscal 135 David, Finch, 151 (FSF), Forum Stability Financial 8688 81, 71, Martin, Feldstein, of, responsibility hearings Humphrey-Hawkins 18 Depression Great accountability 165 System, Reserve Federal 80 (EFF), Facility Extended 298301 (ERBS), stabilizations rate-based States United 417418 Stabilization) 294297 stabilization 232244, 227229, pegs 247249 other 195199 rules feedback money 123124 liberalization 2225 (LOLR) resort last lender 76, Japan Inflation) 273275 inflation 234235 trinity impossible (IMF)) Fund 249 241245, 237, 227230, 37, IMF 247 GDP 250 227241, 223224, floating 246247, Europe 230238 147, 143 emerging 244245 224225, disinflation controls inflow direct 238 230 countries market developed 250n1 for, definitions 177 excess currency 171 banks central 240241 arrangements BBC 144 7677, crisis Asian 76 ASEAN, system financial International See 251254. 215n61, rate, Exchange 173 Banks, of 246 242, 235, 232233, 223, 123, Union, 232238, 197 196 (EMS), System Monetary 200 165166, Bank, Central 438 402, (EBRD), Development and Reconstruction for Bank European process) Transition also (see 456 429 405417, process transition 192 bias inflationary 246247 and, rate exchange 523 Index

144 84, in, crisis 230, 117, Kong, Hong Honduras, 304305 on, list ten top 361367 290304, 297301 anchors nominal 262267 characteristics Inflation Hyperinflation; inflation. High 149 funds, Hedge 104 initiative, (HIPC) Countries Poor Heavily-Indebted visible, 241244 235 233, Union European 250n1 definitions rate Exchange pegs. Hard Steve, Hanke, 389 Danny, Halperin, 327 Haiti, Anne-Marie, Gulde, Pablo, Guidotti, 402427 503517 104, 195199 Levine-Renelt 394 Israeli inflation 509 506 development resource human 509510 markets flexible 367 313n51, 417421 of, determinants 185188 432456 CEE 442449 from distance Brussels, 447 for, equation Barro Growth Vittorio, 201208 index, (GMT) Tabellini Masciandaro, Grilli, 302 De, Jose Gregorio, 511512 Revolution, Green 233234 Greece, 18 Depression, Great 275 188, causality, Granger Seigniorage) 330331 184185 indexation 169 banks policy See 312n28. Government, 293 Robert, 334 194196, David, Gordon, law, Goodharts 183 cost social 193 196 181 177, Product), National GNP 7981 evolution economy world 7576 promotion trade Reform) 135162 reform 461484 117133 liberalization 332 resort last of lender 162 135 7375 cooperation economic international Bank) World (IMF); Fund Monetary International also (see 38 9194 architecture system financial 7677 fluctuations currency 118120 movements capital 74 reports IV Article 495497 ABCDE Globalization 479 coefficient, Gini 241 R., Atish Ghosh, 191 stability 464 199 rules feedback money 44 IMF 273275 257, 242, hyperinflation 293294 disinflation 208 charter bank central 239 166, Germany, 417 410411, Georgia, 473474 Gender, 182 distribution wealth 403417 process transition 415 412 294297, time stabilization 449452 socialism 331 278281, seigniorage 514 508, 507 504505, 501, 478, and, poverty (cont.) Product) Domestic (Gross GDP Index 524

330331 284290, persistent, 214n49 substitution outlet 188192 181, optimal 293 non-tradables 267275 money inflation) Moderate 323382 moderate, 267290 mechanisms 182 Treaty Maastricht 312n38 310n9, indexation Hyperinflation) hyper, historical, 290305, 262267, high, 185188 167, growth 188, 479 coefficient Gini Product)) Domestic (Gross 306 272, 268, GDP 181 anticipated, fully 281284 deficits fiscal rate) Exchange also (see rate exchange 369371 315n65, 314n58, 307309, 290293, 261265, 255257, episodes methods econometric inconsistency dynamic 417421 determinants 267268 sources 177 excess currency 335336 177188, costs 403 time chronological 177195 166167, banks central 431456 (CEE) Europe Eastern and Central Death Black 192195 bias 463464 aversion, 255, assignat, Inflation 509 Act, Disputes Industrial 327 233, 227, 144, 81, Indonesia, 503504 Bank World 501517 503 506 development resource human 509510 markets flexible 510513 agriculture India 322332, wages 442449 438439, 421, 420 418, 405, liberalization 353 331332, 184185, 440442 combining indicator 407 CPI Indexation 205 Metall, IG 372373 347, 342, 339340, 337, Iceland, 410 304306 factors ten top 301 hypothesis temporariness taxes 361367 290304, stabilization 303 effects short-run Serbia 297301 anchors nominal Nicaragua, expansion monetary phenomenon, modern as economics market 257 curve Laffer effect Keynes-Tanzi 383 Israel 302 rules inventory-type 366 rates interest 275 test causality Granger 273275 257, Germany 260261 disinflation 255 definition 361365 for, data 260 credibility 262267 of, characteristics 255262 studies Cagan 464 316321, 244245, Hyperinflation, 415 410, 401, process transition 376377 360361, 357358, 346, 327, 323324, inflation moderate 105 IMF 439 434, 323, 233234, Hungary, 200 hearings, Humphrey-Hawkins 185 David, Hume, 506509 resources, Human 463465 John, Huizinga, 476 poverty 491492 485, and, Miracle Asian East 525 Index

135 Department, Restrictions Trade and Exchange 245 disinflation 7677 fluctuations currency 107111, 99, 91, 154 147, 112113, 108109, 9697, 26, 25 (CCL) Line Credit Contingent 75 40, confidentiality 78 conditionality 110111 collateral Transparency Fiscal on Practices Good Code 107 certification 4142 budget 105 100, 72, 3738, Woods Bretton 41 Plan Baker 110 Bagehot 6894 152156 131, 114115, 100102, 96, 76, 72 67, 3944, 33, 21, Articles 73 APEC 227 2000 Report Annual 223224 66, 65 (IMF), Fund Monetary 150151, transparency 135136 surveillance 145 2425, Standard Dissemination Data Special 136137 (SDRM) Mechanism Restructuring Debt Sovereign 150151 (IOSCO) Commissions Securities Organization 51, international (IAIS) 149155 148149 industrial funds hedge (FSF) Forum Stability 136 (FSAP) Program Assessment Sector 147 143 countries market emerging 155160 management 139143 volatility flow controls capital 160 151152, 148149, 144, Committee Basle 146147 136137, bankruptcy crisis) 144 136, crisis 161162 system, 155 149 reform (IFIs), institutions financial 99 95, Commission, Advisory Institution Financial 60 5758, 4951, 37, (IFC), Corporation Finance 5152, Bank World 45 lending 57 coordination aid 3738 (IDA), Development 151 (IAIS), Supervisors Insurance Association 150 Committee, Standards Accounting International 242 mobility, factor Internal 13 (LOLR) resort last of lender 366 303, inflation 68 crises Asian 165 rates, Interest zero, 180 costs welfare 182 distribution wealth 331332 wages 290293 265267, high, very 462463 unemployment 182183, uncertainty 165166 approach two-pillar process) Transition 401427 process transition 304306 for, factors ten top 260 257, 192195, 180181, taxes 166168 of, targeting 333334 sustainability Stabilization) 395 290304, 303 201, short-run, 276281 193, seigniorage 481482 wage minimum real 177 outcry public 188192 stability price Poverty) also (see 459 poverty 284285 173177, and, curve Phillips (cont.) Inflation Index 526

4 creation money Exchange Monetary 372379 338341, 327330, 323, 5864 merger 115133 75, liberalization 129130 108111, 97, 7779, 4548, 332, lending 118 48, Department, Legal 7375 cooperation economic international Markets Capital 131 Committee Interim 127 provision 167168 targeting 503 India IDA 5960 3738, IBRD 362365 data 104 initiative (HIPC) Countries Poor Heavily-Indebted 241244 pegs hard 73 62, 44, 4041, countries G-7 492 Stability, Financial for Framework Affairs, Fiscal 9194 architecture system financial 223 80, (ESAF) 80 Fund Extended 159 117, 100101, 9596, 67, 34, Board Executive 251n2 249, 245, 241 237, 227230, 527 Index 3 Alexandre, Kafka, 504 Vijay, Joshi, 390 387388, (JEDG), Group Development Economics 246247 76, rate exchange 491492 485, Miracle Asian East 493 in, crisis 172, 166, Japan, 239 192, Italy, 383396 385387 Shultz 393 privatization 387388 Peres 374375 356, 353, 344, 329330, 324, inflation moderate 387 Group, Working Military Joint 185 indexation 361 hyperinflation 392 388, Histadrut 391 GDP 245 233, 227, 165, Israel, 327 Ireland, 150151 25, (IOSCO), Commissions Securities of Organization International 7981 evolution economy world 152 4344, Outlook Economic World 160 150151, transparency process) Transition also (see 404417 397398, 105106, 7980, process transition 78 payments tranched 7576 promotion trade 74 Thailand 103104 4849, assistance technical 135136 sustainability 153154 127128, 112, 101 4244, 33, surveillance 154 112113, 108109, 81, 2526, Facility, Reserve Supplemental 4142 structure 8687 45, policies structural 45 Adjustment Structural 48 department Statistics 33 stabilization 117 41, 40 23, 21, Rights Drawing 151152 145, 73, 2425, Standard, Dissemination Data Special 136137 (SDRM) Mechanism Restructuring Debt Sovereign 112 ROSCs 383384 by, regulation 135162 99114, reform 6869 quotas 100101 95, 7181, 37, of, purpose 6768 issues warning (PINs) notices information public 8486 standards program 486 104, (PRGF) Facility Growth and Reduction Poverty 503504 3435, poverty 77 (NAB) Borrow to Arrangements New 8790 72, and, hazard 389 Jack, Kemp, 92 Henry, Kaufman, 462 Lawrence, moral Katz,

7 489490 countries Specific 260. America, Latin 312n38 310n9, 257, equilibrium, curve Laffer 481482 wage minimum real 509 Act Disputes Industrial 503517 India 212n19 model Friedman-Lucas 509510 markets flexible 510513 agriculture Poverty See Labor. 415416 407, Republic, Kyrgyz 194195 Finn, Kydland, 505 Simon, Kuznets, 136 Anne, Krueger, 2324 (LOLR) lender 491492 485, Miracle East 495496 144, 115116, 110, 93, 8288, in, 327 233, 227, 165, Korea, 10, 8, 3, Charles, Kindleberger, Miguel, Kiguel, 292 Mohsin, Khan, 497 260, 201, 192, model, Keynesian 372373 347, 343, 337, 327, Kenya, Index 528 8 confidence conditionality 1213 collateral banks central 15 England 2627 15, 13, 11, 79, Bagehot 19 Asia 243 2932, 45, (LOLR), resort last of Lender 376377 359361, 357, 346, 324, inflation moderate 106 Latvia, 53 366 effect 3 of, functions 80 Facility Fund Extended rate exchange 815 domestic, 1718, 910, 97 96 (CCL) Line Credit Contingent ambiguity 155160 107111, 99, 91, management 431456 (CEE) Europe Eastern and Central 82 bubbles, crisis) also (see 6894 crisis Asian 485499 ABCDE Macroeconomics. 243244 bill, Mack 387 385, Paul, McCracken, 195196 T., Bennett McCallum, 436 182, Treaty, Maastricht 180181 taxes, Lump-sum 175176 E., Robert Lucas, 481 Francisco, Lopes, 149 (LTCM), Management Capital Term Long 173177 tradeoff, Long-run 488 Millard, Long, 11 78, (Bagehot), Street Lombard 197 Susanne, Lohmann, 392 386, 380n5, 294, 261, Nissan, Liviatan, 417 415, 245, 241, Lithuania, 487 Johannes, Linn, 447 equation, growth Levine-Renelt 5356 Bank World uncertainty 78 payments tranched 23 21, Rights Drawing Special solvency 1617 sector private 1415 awareness principle 13 rates interest penalty 77 (NAB) Borrow to Arrangements New 2728 1517, hazard moral 4, creation money 1012 liquidity 129130 liberalization 149155 1728, financial international 14 institutions individual 108111 7779, 4548, 2022, IMF 104 initiative (HIPC) Countries Poor Heavily-Indebted 18 Depression Great 2225 and, context tequila constructive global

331332, wages 357361 transitional taxes sustainability 332 shocks, supply 361367 stability 330332, 356 sector private 334335 prices 330331 persistent nontransitional 367368 from, lessons 324 nature intractable 380n6 349, 336, GDP for, formula 353 347, 337, 335 330331, equilibrium 369371 episodes 323, Dornbusch 367 disinflation 324325 disappearance 368379 sources data 348357 continued, with 337347 ended, that countries 335336 costs 336367 of, studies case 333334 inflows 347348 deficits budget model Barro-Gordon 332333 demand aggregate 380382 inflation, Moderate 198 Walsh, Seigniorage) seigniorage Rogoff, markup, curve-price 198199 Persson-Tabellini, 195196 McCallum, 197 Lohmann, 497 260, 201, 192, Keynesian, 196 Goodhart, 212n19 Friedman-Lucas, 330336 Dornbusch-Fischer, 197198 Debelle, 334 195196, Barro-Gordon, 313n52 Ambler-Cardia, 316n74 Models, 127128 374375 348357, 344, 329, 327, 324, inflation moderate 2224 7, 3, (LOLR) resort last lender 361 hyperinflation 240 floating 495496 158, 144145, 127129, 93, 9091, 7374, 245 227, 173, 165, Mexico, 9596 26, 89, Allan, Meltzer, 385 (MIT), Technology of Institute Massachusetts 401427 402 reform 393 privatization 331 markup price 73 report Capital International 127 provision information 509510 flexibility 485 promotion export rate) Exchange 230238 136, rate exchange 230 EMBI. 125126 use control 431456 (CEE) Europe Eastern and Central 139143 volatility flow 82 bubbles crisis) also (see 6894 510513 agriculture Markets 8182 in, crisis 146147 controls capital 236 233, Malaysia, 489497 487, 485 Reports Development World 182 distribution wealth 427 401 357361, process transition 4244 surveillance 461484 poverty curve Phillips 436 182, Treaty Maastricht 173177 tradeoff long-run 396 385 383, stabilization Israeli 184185 indexation 80 Facility Fund Extended 491492 485, and, Miracle Asian East 529 Index

267275 273275 7677, 242, 235, 232 Union European 246 244, 243 233, 227228, dollarization 1012 creation 182 181 assumption value constant velocity circulation 242243 195196 model Barro-Gordon Money 188192 zero Report Economic 485497 Reports Development World 165166 two-pillar transparency 421423 process transition 78 payments tranched 513 461, 459, 389, 353, 260, 257, 192195, 184185, 180181, taxes 127128, 7374, 4244, surveillance 8687 of, structure 23 21, Rights Drawing Special 449452 socialism 217n92 169, effects term short/long 490491 treatment shock 335 330332, seigniorage 112 ROSCs 135162 99114, reform 6869 quotas Prices) 169 stability price 104 (PRGF) Facility Growth and Reduction Poverty 461484 poverty phasing 77 (NAB) Borrow to Arrangements New 504 NAFTA rules feedback money 436 182, Treaty Maastricht 175176 on, Lucas 133, 115 9293, 87, 75, liberalization 332 resort last of lender 260 effect Keynes-Tanzi Japan 383396 Israel 149155 institutions international 99 95, Commission Advisory Institution 73 report Markets Capital 242 mobility factor internal Inflation) 368 331, 166169, inflation 184185 indexation 234235 trinity impossible (IMF)) Fund International 80 40, IMF 196 law Goodharts 201208 index GMT 337 GDP 509510 markets flexible 9194 architecture system 124125 strength sector financial 136 (FSAP) Program Assessment Sector Financial 485 promotion export rate) Exchange 227254 rate exchange Europe) 246247 Europe 147 143 countries market emerging 491492 485, Miracle East 195199 approach discretionary 238 controls inflow direct 177 excess currency 155160 107111, 99, 91, management 334335 194195, credibility 125126 use control banks) Central 195211 170, banks 208211 charters bank central 234 105, 100, 7273, 3738, Woods, Bretton 240241 arrangements BBC 496 160, 148152, 144, Committee Basle 41 Plan Baker crisis) also (see 6894 crisis Asian 74 and, reports IV Article policy Monetary 377 376 359361, 357, 346, 324, Moldova, Index 530

194195 S., Edward Prescott, 462 T., Elizabeth Powers, 478 World 513 461, 459, taxes 501 sustained, 464465, Roper-Starch 469473 information robustness 481482 wage minimum real prices 462464 survey literature 480 501517 India 503504 509 506 development resource human 503517 growth 479 coefficient Gini 473474 gender 514 507508, 504505, 501, GDP 509510 markets flexible 471473 468469, 463, education 464473 sources data 474477 effects country 481 478, index consumer 471 468, 465, issues classification 478479 quintile income bottom 510513 agriculture 472 age 483484 Poverty, 181 5051, theory, Portfolio 401, 397, process transition 376377 359361, 357, 346, 324, 105 48, IMF 439 245, 233234, Poland, short-run 331 markup price 173174 on, predictions 175176 Lucas tradeoff long-run 284285 persistence inflationary 175 173 approach Friedman-Phelps 294 disinflation 334 credibility 173177 banks central 185 curve, Phillips 81 Philippines, 188 173175, 168, Edmund, Phelps, 345 inflation moderate 379 378 365366, 361, hyperinflation Peru 198199, Torsten, Persson, 387388, 383384, Shimon, Peres, 227 crises market 250n1 for, definitions rate Exchange See 223224. Pegging, 260 Felipe, Pazos, 373 372 347, 343, 340341, 337, Paraguay, 102 Authority, Palestinian 110 Pakistan, 214n49 bias, substitution Outlet 488 Kate, Oram, Arthur, Okun, 296 profiles time stabilization 150 reform 128 liberalization countries, Development) and Cooperation Economic for (Organization OECD 389 David, Obey, Non-tradables, 257 Nicaragua, 191 stability 198199 rules feedback money 210211 208, charter bank Central 200 191, 173, 171, 169, 165, Zealand, 77 (NAB), Borrow to Arrangements New 303 Joao, Neves, 391 Amnon, Neubach, 476 Netherlands, 323 Hungary, Bank National 504 NAFTA, 249 33, Michael, Mussa, 401 Mozambique, 230 (MSCI), International Capital Stanley Morgan 59 10, P., J. Morgan, 8790 72, 2728, 1517, hazard, Moral 415 Mongolia, 180 calculation triangle 293 non-tradables 243244 bill Mack (LOLR)) Lender also (see 12 10 4, (LOLR) resort last of lender 242 and, mobility factor internal 531 Index

& Christina Romer, 440 415416, 158, 110, Romania, 197 Kenneth, Rogoff, 302303 Carlos, Rodriguez, 462 Fernando, Rezende, 191 199 rules feedback 208 charter bank 200 accountability 171 169, Zealand, New Reserve 112 (ROSCs), Codes Observance the on Reports 273, model VAR 267275 inflation, money 284290 operators lag inflation/growth 275 test causality Granger 285 form autoregressive analysis Regression 155 Bank World 150151, transparency surveillance 2425, Standard Dissemination Data Special 136137 (SDRM) Mechanism Restructuring Debt Sovereign 503517 150151 (IOSCO) Commissions Securities Organization 149155 institutions financial international (IAIS) Supervisors Insurance Association 150 Standards Accounting International 148149 industrial 114 99 95, 509 506 development human 149 funds hedge 509510 markets flexible 151 (FSF) Forum Stability 136 (FSAP) Program Assessment Sector Financial 147 143 countries market emerging 155160 management controls 160 151152, 148149, 144, Committee Basle 146147 136137, bankruptcy 510513 agriculture 161162 Reform, 303 Sergio, Rebelo, 480 Ravallion, 481 Martin, Rama, 184 Committee, Radcliffe 6869 Quotas, 478479 data, Quintile 152 (PINs), notices Public 185188 Productivity, 401 393 Israel 438 (CEE) Europe Eastern and Central Privatization 147 145 reform 1617 (LOLR) 145146 to, information 146 strength finance corporate 139143 volatility flow capital 356 sector, Private uncertainty 401427 process transition 301 hypothesis temporariness Stabilization) 188192 169173, stability 182183 allocation resource Poverty) 459 poverty 331 curve Phillips 436 182, Treaty Maastricht 496 442449, 438439, 405, 401, 117133, 9293, 87, liberalization Inflation) also (see 255262 inflation 241242 pegs hard 177 excess currency 407 CPI 208211 charters 169173 banks central 82 bubbles 442449 Brussels 334 of, adjustments Prices Index 532 3 resort last of lender 106 48, IMF 257 and, hyperinflation 144 84, in, crisis 245 233, 227, Russia, 187188 D., Glenn Rudebusch, 464 Richard, Rose, 476 464465, Worldwide, Starch Roper 479 462, David,

198 rules feedback 332 186 shocks, Supply 292293 Alan, Stockman, 290 H., James Stock, Joseph, Stiglitz, 389, 387, 383385, Herbert, Stein, 487 Andrew, Steer, process) Transition 415 412 403, 294297, profiles 301 hypothesis temporariness 4244 surveillance 314n58 points starting 385387 Shultz 424n7 sampling short Reform) 135162 reform Poverty) 504 459 Real Plan 297301 anchors nominal 296 LIBOR 383396 Israel 303 rates interest Inflation) 337 290304, 188192, 503517 India (IMF)) Fund Monetary International 59, 33, 361367 149 funds hedge 402427 growth 331 GDP 492 Stability Financial for Framework rate) (see 298301 7677, exchange 260261 403 chronological 208211 charters 442449 standard Brussels 190191 Britain 381n11 302304, Stabilization, 233 Lanka, Sri 488 486, Lyn, Squire, 23 21, Rights, Drawing Special 327 Spain, 423 397, 412415 time stabilization 489 ABCDE Union Soviet 227 165, Africa, South Robert, Solow, rate Exchange also See 250n1. 227, pegs, Soft 449452 Socialism, 461484 184185 indexation 182183 costs, Social 345 moderate 105 IMF 379 364366, 361, hyperinflation 366 disinflation 422, 378, Slovenia, 440 415, 410, Republic, Slovak 385 School, Sloan 491492 485, Miracle Asian East 81 Singapore, 385386 Abraham, Siegel, 383390 Shultz, 173177 tradeoff, Short-run 464 J., Robert Shiller, 386 Eytan, Sheshinski, 391 388, 386, Emanuel, Sharon, 257 Serbia, 292 Abdelhak, Senhadji, 177 Bullion, Gold of Price High the on Committee Select 335 of, reduction 267275 money 337, 335, 330332, 278281, inflation 330331 revenue government 347348 276278, deficits fiscal 279 defined, 193 Seigniorage, 391395 387388, George, Schultz, 196 Richard, Sayers, 294 290, 289 260, 257, 255, 196, Thomas, Sargent, 173 Paul, Samuelson, 401427 431456 (CEE) Europe Eastern and Central 397 255321, Ratna, Sahay, 159 Jeffrey, Sachs, 405 401, 399, process transition 474 and, poverty 533 Index

a Toward 488 Vinod, Thomas, 127 provision information 78 7475, 495496 144, 129, 115116, 110, 8186, 233 Thailand, 301 hypothesis, Temporariness 56 Bank 104 103104 4849, 511512 Revolution Green Technology 193 seigniorage 459 regressive, 513 461, 459, 353 180181 lump-sum, 257 Laffer effect Keynes-Tanzi 389 Israel 257, 192195, 180181, 184185 indexation Taxes effect, Tanzi 327 Tanzania, 416417 410411, Tajikistan, 491492 485, Miracle Asian East Taiwan, 260 198208, Guido, Tabellini, 172 Bank, National Swiss 165 102, Sweden, 136 135 501 333334 moderate Sustainability Report Economic World 153154 of, strengthening Mexican 149155 institutions financial international 99 95, Commission Advisory Institution report Markets Capital (IMF)) Fund Monetary International 127128 73, 74 reports IV Article 73 APEC 4244 Surveillance, Index 534 296 LIBOR 15 13, 11, 79, resort last of lenders 192 bias inflationary 109110 lending 210211 charter bank central 159 Deed Trust British 239 171172, 169, 165, Kingdom, United zero Poverty) 173177 curve Phillips 462463 173177, Unemployment 188192 182183, 14, Uncertainty, 476 474, poverty 106 110 158 Ukraine, 165166 approach, Two-pillar 224225 disinflation crisis 245 233, 227, 168, Turkey, Hyperinflation See inflation. Triple-digit 410 war 412415 stabilization 417 405 399, 397, Union Soviet 449452 effects socialism 402403 reform 403417 in, experience recent 401 privatization Poland 420421 estimation output 297301 anchors nominal 421423 policy monetary 401402 economy market 421 420 418, 405, 401, liberalization 415421 inflation 405412 for, indicators 105106 7980, IMF 417418 rate exchange Europe) also (see 405417 Europe 402 EBRD 417419 404405, use data 397 over, controversies 398 and, China 424427 process, 263265 matrices, Transition 144 (IMF), Stability Financial for Framework

327 Zimbabwe, 421 417, 415, 411, 407, Macedonia, of Republic Yugoslav 246 Yen, 495 72, Organization, Trade Outlook,4344,152 Economic 485497 Reports Development report 56 assistance technical 5657 analysis, research 155 purposes 478 3435 countries poor 5864 merger 117 liberalization 5356 503504 India 105 5758 4951, IFC 5152 IDA 59 5053, IBRD 3738 growth 72 Woods Bretton 4950 of, Articles 61 57, coordination aid 485499 ABCDE 418 323, 104, 73, 6566, 26, Bank, World Labor See Workers. 241 Holger, Wolf, 489 240, John, Williamson, 187188 W., David Wilcox, 429 Europe, Western 180 costs, Welfare 192, 76, War, 55 report, Wapenhans 198199 Carl, Walsh, 390 388, Allan, Wallis, 257 Neil, Wallace, 481482 minimum, real 173177 curve Phillips 331332 inflation 241242 pegs hard 433434 Wages 401 Vietnam, 233 208, Venezuela, 255 Francois, Velde, 401427 process transition 255321 Hyperinflation 431456 (CEE) Europe Eastern and Central 397 302, 294, 292, 261, A., Carlos Vegh, 275 273, (VARs), autoregressions Vector 410 Uzbekistan, 463 unemployment 393 390, 386, Department, State 148149 reform Poverty) 464 (NAB) Borrow to Arrangements New 77 lending 383396 Israel 192195 bias inflationary (IMF)) Fund Monetary International also (see 95 IMF 18 Depression Great 246247 rate exchange 244 dollarization 71 Congress, 210 charter bank central States United 151 transparency 190191 stability 515 and, poverty 535 Index