Israel's stabilization program

In order to combat inflation, Israel launched a stabilization program in July 1985 which resulted in inflation decreasing to a low 20 percent annually as compared with more than 400 percent in 1984. What contributed to this decline? This paper attempts to analyze the major factors which made the transition to low inflation possible. It deals with such issues as the role of U.S. aid and of domestic fiscal adjustment, of monetary and exchange rate policies and of the change in the rules of the game concerning government-labor interactions. The paper focuses on the evaluation of the stabilization program from the 1987 perspective and examines the evolution of the disinflationary policies in the course of the program. Although Israel has obviously made strides in correcting inflation, several problems remain for the economy. The final section of the paper deals with these issues and the policy dilemmas which face the government.Economic Stabilization,Economic Theory&Research,Environmental Economics&Policies,Financial Intermediation,Fiscal&Monetary Policy