NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Benefits of Crises for Economic Reforms

Allan Drazen, Vittorio Grilli

NBER Working Paper No. 3527
Issued in December 1990
NBER Program(s):International Trade and Investment, International Finance and Macroeconomics

This paper presents a model in which economic crises have positive effects on welfare. Periods of very high inflation create the incentive for the resolution of social conflict and thus facilitate the introduction of economic reforms and the achievement of higher levels of welfare. Policies to reduce the cost of inflation, such as indexation, raise inflation and delay the adoption of reforms, but have no effect on expected social welfare.

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Document Object Identifier (DOI): 10.3386/w3527

Published: American Economic Review, vol.83, no.3, June1993. citation courtesy of

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