Alternatives to stabilization: gradualismo, dollarization, and populism
The paper discusses the issues involved in three different varieties of stabilization
plans: gradualism, dollarization, and social pacts. It is argued that the efficiency of each
alternative depends upon special conditions pertaining, by and large to the dynamics of
price fixing in the Brazilian economy. Shock alternatives in particular, namely, price freezes
or pre-fixing schemes, are said to have their usefulness attached to “backwards looking”
price fixing behavior. Gradual strategies, on the other hand, especially when unambiguously
orthodox, are said to be more efficient when “forward looking” behavior is adopted by price
setters. The paper also discusses the conditions for the application of an Argentinean type
dollarization in Brazil and also institutional peculiarities affecting the feasibility of “social
pacts” in Brazil.
JEL Classification: E31; F31.
Keywords: Inflation stabilization dollarization