Who Is Voting for Low Inflation and Why?
Who Is Voting for Low Inflation and Why?
This chapter analyzes the impact of low inflation. It argues that despite repeated efforts by governing authorities to initiate anti-inflationary policies, long-lasting stabilization can prove elusive. Reducing inflation is one thing, but keeping it down is the real challenge. The chapter highlights the experiences of some Latin American countries in the 1970s and 1980s, Russia in the 1990s, and Argentina in the 2000s. One typical mistake was to choose the exchange rate as the nominal anchor, which allows the inflation rate to be reduced quickly, but its effect is temporary, as governments often use lower inflation as a reason to delay the necessary fiscal tightening, eventually leading to the collapse of the exchange rate peg and inflation striking back with a vengeance.
Keywords: inflation, monetary policy, fiscal policy, macroeconomic policy, poverty, income inequality, Brazil, exchange rate
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