Inflation and Policy Response - The Israeli Case: 1970-1989

The Israeli Economy has served as a laboratory for the study of inflation and government policy reponse. In periods crucial for Israel's experience of inflation, finance ministers were replaced frequently, often changing their predecessors' policies, much to the detriment of inflation. Inflation grew from an average of less than 10% per year in the decade preceding the first oil price shock to nearly 500% by the end of the first half of 1985. In the second half of 1985 a comprehensive and successful stabilization program masterminded foremost by Professor Michael Bruno brought inflation down to 15 to 20% at which level it stabilized until about 1991. The present paper which was written in early 1990 discusses Israeli inflation up to that time. In the years from 1992 to 2000 inflation was further reduced by quite a different strategy and since then Israel has been enjoying price stability.