Fighting inflation in Latin America

Inflation seems to be a chronic problem for Latin American economies ever since the Second World War. In the 1980s, inflation ran out of control in many countries. This paper analyzes the causes for these high inflation rates and discusses the experiences of Latin American countries in fighting (hyper-) inflation in the 1980s and 1990s. Particular attention is given to the relative merits of orthodox versus heterodox approaches, and to the use of the exchange rate as inflation stabilizer. Among other things, the paper concludes that achieving fiscal balance is crucial in whatever method used, and that a fixed exchange rate can help to stabilize inflation but contains many risks, in particular, with open capital accounts.