Hyperinflation in Latin America

ABSTRACT

This paper discusses why inflation is so high in Latin America and· what can be done to stop it. The first part starts with an analysis of monetarism. It also discusses seignorage models, the impact of the debt crisis and of dollarization on inflation. Next, we review structuralism and its most recent insight: inflation inertia. Then we integrate the different interpretations of inflation. The second part examines stabilization programs, beginning with the analysis of programs derived from the monetarist diagnosis, or orthodox programs. Next, we turn to heterodox programs, including both populist programs and programs based on a new interpretation of inflation. The stabilization programs of the 1980s failed to obtain budget consolidation and large budget deficits have pushed the economy into a classic inflationary finance situation.

KEYWORDS:
Inflation; hyperinflation; monetary policy; stabilization