Brazilian inflation and the theory of games

Vol. 15 No. 4 (1995)

Oct-Dec / 1995
Published October 1, 1995
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How to Cite

Haneke, Uwe. 1995. “Brazilian Inflation and the Theory of Games”. Brazilian Journal of Political Economy 15 (4):84-98. https://centrodeeconomiapolitica.org.br/repojs/index.php/journal/article/view/1258.

Brazilian inflation and the theory of games

Uwe Haneke
Brazilian Journal of Political Economy, Vol. 15 No. 4 (1995), Oct-Dec / 1995, Pages 84-98

Abstract

Based on the disaggregation of the private sector as an amplification of the well-known Barro & Gordon policy-game model, a coordination and/or cooperation problem of the price-setters in the private sector is identified as a possible cause for the persistence of inflation even during stabilization efforts. This kind of persistence is, at least in the short-term, independent from the willingness of the government to stop inflation. A process of self-fulfilling prophecies is started by the “wait-and-see” behavior of private sector’s price-setters, which can result in the giving up of the stabilization policy. Breaking this “wait-and-see” behavior could be one of the major problems in stabilizing economies with chronic high inflation.

 


Keywords: Inflation game theory stabilization