Sources of inflation and the effects of balanced budgets and inflation targeting in developing economies

Authors

Guilherme Klein Martins, University of Massachusetts AmherstFollow
Peter Skott, University of Massachusetts - AmherstFollow

Working Paper Number

2020-08

Publication Date

2020

Abstract

This paper presents a model of inflation in developing economies and uses it to evaluate macroeconomic policy in those countries. We see cross-sectoral interactions between demand and supply side forces as central and show that the standard macroeconomic policy recommendations of inflation targeting and balanced budgets (i) increase volatility by amplifying external shocks and (ii) can lead to premature deindustrialization. The analysis applies to economies with marked underemployment, a central feature of developing and emerging countries. The recent Brazilian experience is used to illustrate the argument.

DOI

https://doi.org/10.7275/18878435

License

UMass Amherst Open Access Policy

Recommended Citation

Martins, Guilherme Klein and Skott, Peter, "Sources of inflation and the effects of balanced budgets and inflation targeting in developing economies" (2020). UMass Amherst Economics Working Papers. 291.
https://doi.org/10.7275/18878435