10.2-4311-Inflation-Trilemma

10.2-4311-Inflation-Trilemma - Inflation 2 The Economy of...

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Inflation 2 The Economy of Latin America
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80’s During the 80’s the structuralist view dominates the debate in Latin America Inflation was caused by the structure of the economy Measure were introduced to reduce the cost of inflation: INDEXATION
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INDEXATION Indexation try to maintain the relative price of goods stable in a environment with high inflation Wages were indexed by minimum wage that adjusted periodically Rents were indexed to inflation Saving and checking accounts were indexed as well
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Main Consequences of Indexation Made inflation easier to live with Reinforce inflation it transfers inflation from the present to the future automatically It became harder to fight inflation inflationary expectations became ingrained in the culture People expected inflation, the government accommodated inflation, and the public got inflation
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Macroeconomic Policy Trilemma A country can choose only two of the following three policy goals: 1.
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