Brazilian inflation and the theory of games

Vol. 15 No. 4 (1995)

Oct-Dec / 1995
Published October 1, 1995
PDF-Portuguese (Português (Brasil))
PDF-Portuguese (Português (Brasil))

How to Cite

Haneke, Uwe. 1995. “Brazilian Inflation and the Theory of Games”. Brazilian Journal of Political Economy 15 (4):547-62.

Brazilian inflation and the theory of games

Uwe Haneke
Universidade de Halle – Wírtenberg, Alemanha.
Brazilian Journal of Political Economy, Vol. 15 No. 4 (1995), Oct-Dec / 1995, Pages 547-562


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.

JEL Classification: E31; C70.

Keywords: Inflation game theory stabilization