Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/277468 
Year of Publication: 
2020
Citation: 
[Journal:] European Journal of Economics and Economic Policies: Intervention (EJEEP) [ISSN:] 2052-7772 [Volume:] 17 [Issue:] 1 [Year:] 2020 [Pages:] 78-105
Publisher: 
Edward Elgar Publishing, Cheltenham
Abstract: 
This paper highlights the role of external indebtedness and the presence of inflationary inertia in order to assess the effectiveness and sustainability of inflation targeting during disinflation episodes. As the recent Argentinian experience illustrates, a sluggish inflation rate and a significant current-account deficit may make the stabilization process difficult. To illustrate the point, we build a model that shows that, when inflation adjusts fast, the target may be achieved without building too much external debt. But if inflation adjusts slowly, an excessive build-up of external debt could lead to an increase in the risk premium, a sudden shortage of foreign exchange, and the eventual collapse of the inflation-targeting regime.
Subjects: 
inflation targeting
debt traps
chronic inflation
lack of credibility
JEL: 
E31
E52
E58
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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