Inflation in Argentina: Stop and go since the Austral plan

Abstract

This paper examines the Argentine experience with inflation and stabilization attempts between 1985 (the time of the launching of the Austral plan) and late 1988. The Austral plan was a heterodox program in the sense that it initially combined orthodox components — such as a tightening in fiscal and monetary policy — with less orthodox ones such as wage and price controls. While the design of the Austral program was sophisticated, the inability to deal with the structural fiscal problem made this effort futile. In addition, the repeated use of price and wage controls in follow-up stabilization attempts was a mistake as it led to greater inflation variability, as it induced additional price and wage increases in anticipation of a new round of controls.