Kiguel & Liviatan, 1991.

Heterodox stabilization programs are more successful in chronic high inflation countries because only there can the benefits from achieving a rapid initial reduction in inflation outweigh the costs of tampering with price and wage controls. While the heterodox phase is effective in blocking inflation initially, success depends on a long-term commitment to the orthodox part of the program and the readiness to accept the unavoidable costs of disinflation.

Kiguel & Liviatan, 1990.

The repeated use of price and wage controls is likely to destabilize inflation in the medium run. The similar cyclical pattern of inflation observed in the aftermath of the failures of the Austral plan in Argentina and the Cruzado plan in Brazil is mostly linked to anticipations about the introduction of price controls. The heterodox approach is risky if not accompanied by an adequate adjustment in the budget deficit.

Kiguel & Liviatan, 1990.

Programs based on tight fiscal and monetary policies (the orthodox approach) are slow at reducing inflation in high-inflation countries. Why? The policy-game approach sheds light on the credibility problems that raise the public’s inflationary expectations.

Kiguel, 1989.

Why did the Austral plan fail to curb inflation on a sustained basis? Sophistication in the design of a stabilization program is no substitute for addressing fundamental imbalances, contends the author – and price controls, improperly used, can make the problem worse.

Kiguel & Neumeyer, 1989.

In Argentina, increases in inflation appear to be closely linked to government attempts to increase seigniorage (government revenues from issuing money). The implication? Any serious stabilization effort requires finding an alternative source of revenue to replace the “inflation tax.”

Kiguel & Liviatan, 1989.

Heterodox stabilization programs can bring down inflation quickly without costing much unemployment in the short run. But costs that appear up front in orthodox programs are delayed in heterodox programs. Tight fiscal policy and a strong nominal anchor are critical to their success in the long run. 

Kiguel, 1989.

Large budget deficits financed by money creation are widely believed to be the primary force sustaining prolonged high inflation processes. The relationship appears to be closer for hyperinflationary episodes, which are usually associated with the presence of massive budget deficits. Hyperinflation, understood in this paper as a process of accelerating inflation, in fact occurs because governments have unsustainably large budget deficits.

Kiguel & Liviatan, 1988.

Orthodox stabilization programs in Latin American countries have been notoriously unsuccessful in combating inflation, despite the imposition of stringent cuts in government deficits. In most cases inflation came down only slowly and temporarily, with concomitant declines in growth and employment. The Bolivian progam, one of the only Latin American successes, is contrasted with those of Argentina, Brazil, Chile, and Mexico. The problems of dealing with chronic inflation are compared with those of hyperinflationary countries, and the influence of price and wage rigidities, expectations, and credibility is explored. The study shows that fiscal restraint is a necessary but not sufficient condition for success, and that sound management of nominal variables (the exchange rate and money supply) are also necessary. The critical role of credibility is linked with price and wage rigidities in the chronic inflation countries, whereas the unsustainability of hyperinflation is seen to increase the credibility of and thus the potential for successful stabilization programs.

Kiguel and Liviatan, 1992.

What advantages and disadvantages does the heterodox strategy offer to stabilization programs in countries with chronic high inflation? Heterodox stabilization programs, in our definition, are those that support orthodox policies – that is, tight fiscal policy and a fixed exchange rate- with the initial, temporary use of incomes policies-that is, price and wage controls. This evaluation, based on several heterodox programs, successful and unsuccessful, from the 1960s and 1980s in Latin American countries and Israel, affords four principal lessons.

Kiguel and Dauhajre, 1988.

Under a flexible exchange rate system, large fluctuations in the nominal and the real exchange rates seem to be the rule rather than the exception. The significant appreciation of the dollar during the early 1980’s followed by its recent steep depreciation provides new evidence for this fact. The seminal work of Dornbusch (1976) introduces the notion that exchange rates are likely to be very volatile in the presence of sticky prices, a fixed level of output, and continuous adjustment in the asset markets. As a matter of fact, the assumption of instantaneous adjustment in the asset markets and the existence of sticky prices were central to overshooting the exchange rate in Dornbusch’s framework.