According to conventional wisdom, inflation can only be reduced at the
cost of a short-term contraction in economic activity. Available evidence
for industrial countries has been taken to support the notion that disinflation
is contractionary (Gordon, 1982). The costs of disinflation are
generally attributed to the presence of nominal contracts (Fischer, 1977;
Taylor, 1980) and are thus expected to hold for open economies (Fischer,
1986). The last 15 years, however, have witnessed the emergence of a
large body of evidence on the real effects of stabilization in high-inflation
countries which clearly defies this conventional view.