Abstract

First the process of high inflation is described. The theory presented is built around nine stylized facts. High inflations have always political explanations and strong political consequences. Two traditional cures for high inflation are to apply a nominal anchor: Fix the money stock by closing the budget deficit or fix the nominal exchange rate. Braking is painful in both cases, and it often breaks down. The third traditional cure is an incomes policy, which often works in the short run, but not in the long run. By combining a hard incomes policy with a closing of the budget deficit and a fixed exchange rate, it is possible, but not easy, to stop high inflation painlessly. Finally institutional reform is discussed.

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