TY - JOUR
T1 - Israel 1983
T2 - A bout of unpleasant monetarist arithmetic
AU - Sargent, Thomas J.
AU - Zeira, Joseph
PY - 2011/7
Y1 - 2011/7
N2 - This paper claims that anticipations of a massive future government bailout of owners of fallen bank shares suddenly caused a big jump in inflation in Israel in October 1983. That month, the government promised that four or five years later it would compensate people for the fall in the value of their bank shares. We reason that the public believed that promise, that it understood that the public debt must jump, and further that the public anticipated that the government would finance that debt via an eventual monetary expansion. That sparked an immediate jump in inflation via the unpleasant monetarist arithmetic of Sargent and Wallace (1981).
AB - This paper claims that anticipations of a massive future government bailout of owners of fallen bank shares suddenly caused a big jump in inflation in Israel in October 1983. That month, the government promised that four or five years later it would compensate people for the fall in the value of their bank shares. We reason that the public believed that promise, that it understood that the public debt must jump, and further that the public anticipated that the government would finance that debt via an eventual monetary expansion. That sparked an immediate jump in inflation via the unpleasant monetarist arithmetic of Sargent and Wallace (1981).
KW - Inflation
KW - Inflation tax model
KW - Rational expectations
KW - Unpleasant monetarist arithmetic
UR - http://www.scopus.com/inward/record.url?scp=79956337172&partnerID=8YFLogxK
U2 - 10.1016/j.red.2011.03.002
DO - 10.1016/j.red.2011.03.002
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AN - SCOPUS:79956337172
SN - 1094-2025
VL - 14
SP - 419
EP - 431
JO - Review of Economic Dynamics
JF - Review of Economic Dynamics
IS - 3
ER -