A new paper makes a contrarian defence of Mauricio Macri's fiscal gradualism and inflation targeting
a country they always say…here it is different,” Rudiger Dornbusch, a legendary economist, once told his students at the Massachusetts Institute of Technology . “Well, it never is.” For most countries, his words are a warning. For Argentina, they are a comfort. The country has lurched from one economic crisis to another, culminating in the recent reimposition of currency controls and rescheduling of debts.
Headline inflation was, however, far higher. That gave the government an excuse to relax the inflation target on December 28th . Analysts hoped it was merely bringing the target in line with reality. In fact, says Mr Sturzenegger, it sought a gentler pace of disinflation in order to reduce the cost of those backwardly indexed pensions. The raised target, plus two cuts in interest rates in January 2018, delivered a “permanent shock” to the central bank’s credibility.
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