This article presents a model in which distributional conflict and cross-sectoral interactions between demand and supply side forces determine inflation in developing countries. We 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 recent Brazilian experience is used to illustrate the argument.
Bibliografisk noteFunding Information:
This work was supported by the Chair?s Summer Research Fund from the Department of Economics, University of Massachusetts, Amherst (UMASS).
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