Using a variant of the Cagan model with rational expectations, this paper shows that expected stabilization can result in a budget deficit in excess of the maximum inflation tax. A cap on the deficit dampens inflation expectations and raises real balances, thus increasing the yield of the...

Inflation and financing of public expenditure by are analysed in an OLG model where the deficit is constrained to be less than a given fraction of intergenerational savings. Even if there may be multiplicity of steady-state equilibria, we show that, with such a constraint, the dynamics with...

In early 1990, Argentina, Brazil, Peru, Yugoslavia and Poland were experiencing extreme instability or, at least, the early stages of stabilization. Other countries, like Bolivia, had already run the course and stabilized or, like Mexico, had avoided the extreme experience and opted for...