Working Paper Number

2020-08

Journal or Book Title

UMass Amherst Economics Working Papers

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.

License

UMass Amherst Open Access Policy

Included in

Economics Commons

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