HighInflationCausesandConsequences.pdfVIP

John H. Rogers Ping Wang Assistant Professor of Economics Visiting Senior Economist Pennsylvania State University Federal Reserve Bank of Dallas and Assistant Professor of Economics Pennsylvania State University High Inflation: Causes and Consequences lthough cases of very high inflation and hyper- four countries has been mixed, as Table 1 indicates. A inflation may at first seem like unusual events, Argentina made several unsuccessful attempts at in recent years these economic scourges have stabilization before initiating its April 1991 program, been all too common. Using the conventional which still endures; Bolivia enjoyed an immediate definition of hyperinflation as a monthly inflation and lasting end to inflation in mid-1985; and rate of more than 50 percent, there were no hyper- Mexico experienced a gradual and lasting end to inflations in the world between 1950 and 1983 but inflation, while Brazil has yet to control inflation seven in the second half of the 1980s. Further- for any substantial length of time. Table 1 also more, the 1980s brought approximately twenty provides figures on the changes in real economic episodes of high inflation (rates exceeding 100 activity taking place around each of the inflationary percent in a twelve-month period), originating in episodes. Each successful stabilization, regardless nine Latin American countries. of whether it came about in a gradual or a short- In this article, we try to answer a series of lived fashion, has been accompanied by no worse questions that can at least offer some guidance for than a temporary drop in output. understanding the economics of high inflation. Economists generally accept the view that First, what are the costs of inflation compared with inflation is ultimately a monetary phenomenon. the costs of lowering inflation