Development Economics and Structuralist Macroeconomics
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Development Economics and Structuralist Macroeconomics

Essays in Honor of Lance Taylor

Edited by Amitava Krishna Dutt

Lance Taylor is widely considered to be one of the pre-eminent development economists in the world and is known for his work on development planning, macroeconomics of development, stabilization policy, and the global economy. He has also been the major force behind structuralist economics, which is seen by many to be a major alternative to orthodox development economics and policy prescriptions. The essays in this volume, written by well-known scholars in their own right, make contributions to each of these areas while honoring the contributions made by Lance Taylor.
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Chapter 12: Inflation, stabilization and growth: multiple equilibria in a structuralist model

Jaime Ros


12. Inflation, stabilization and growth: multiple equilibria in a structuralist model Jaime Ros* A major feature of Latin America’s economic performance in the 1990s has been the resumption of economic growth, at an overall modest pace and with a variety of performances across countries. A growing literature addresses the role that macroeconomic stabilization has had in this growth recovery and by now a wide consensus exists that stabilization has been an important factor, if not the major factor in some cases, behind economic recovery.1 A gap in this literature, however, is that the reverse causation going from growth to macroeconomic stability has been largely absent from the analysis. This chapter presents a growth model in the tradition of Taylor’s structuralist macroeconomics in which inflation stabilization results in a shift from a bad equilibrium with slow growth and high inflation to a high level equilibrium with low inflation and faster growth. The basic point of the model is that stabilization can trigger a virtuous circle of investment recovery, capital inflows and real currency appreciation which in turn strengthens the stabilization process. The triggering factor may be a heterodox price and wage freeze, a fiscal adjustment, a revival of animal spirits and private capital inflows or the resumption of international lending to the public sector. Usually more than one factor had a role; for example, fiscal adjustment followed by a recovery of international lending as in Chile in the mid-1980s, heterodox stabilization accompanied by debt relief...

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