Stabilization programs: A comparative study of Weimar Germany and Argentina
Eckermann, Armin
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https://hdl.handle.net/2142/20721
Description
Title
Stabilization programs: A comparative study of Weimar Germany and Argentina
Author(s)
Eckermann, Armin
Issue Date
1992
Doctoral Committee Chair(s)
Baer, Werner W.
Department of Study
Economics
Discipline
Economics
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, General
Economics, Finance
Economics, History
Language
eng
Abstract
"The current debate on inflation stabilization is led by Thomas Sargent and Rudiger Dornbusch. The two names stand for different ideas, approaches, and methods. The controversy ignited around the interpretation of the term ""credibility"" and how to establish credible policy. The two views appear to be diametrically opposed, belonging to the old discussion about ""Rules vs. Discretion""."
The thesis illustrates the impossibility of fully establishing credibility by focusing on the fiscal sector and its inter-relatedness to the private domestic and foreign sector. The fiscal balancing process is for both economists a prerequisite for lasting price stability. The stabilizing government is confronted with different ex-ante and ex-post constraints which affect the needed fiscal discipline and may threaten the stabilization attempt. Sectoral adjustments cause the constraint to shift.
"The analysis focuses on the fiscal balance after the stabilization has been launched. Two case studies--Weimar Germany and the Republic of Argentina--serve as an illustration. The case of Weimar Germany reveals that the assurance needed to sustain a balanced budget was not achieved as described by Sargent and Dornbusch. The German government could not sustain a balanced budget. But, contrary to Argentina, it maintained a stable price level. The assurance needed for the economic agents was supplied or made possible by the foreign sector via the implementation of the Dawes Plan. Afterwards, Weimar's economy was supervised by a foreign ""Agent-General"" and was credibly liable for any reparation default. The Plan caused an economic recovery by attracting foreign capital. Nothing comparable could ever be established in Argentina, unless the IMF could take over the Argentine economy to generate the credibility for a massive capital inflow. Hence, the German case must be judged in light of the Dawes Plan and does not offer much insight for any other country that suffers a binding foreign sector constraint in the aftermath."
"The thesis presented evidence that lasting price stability is often impossible to generate via a ""promise"" to stabilize the budget.Structural problems and exogenous factors impacted the budget. The resulting fiscal imbalance can be relieved in a number of ways. Furthermore, the ""Rules vs. Discretion"" issue is decided in favor of ""Discretion."""
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