ABSTRACT
Inflation is a macroeconomic problem that requires constant surveillance, but there are healthy and unhealthy ways of controlling it. If it is demand-pull inflation (which is its normal condition), the healthy ways of controlling it in the developing countries are (a) fiscal policy and (b) the management of interest rate policy by the central bank, in order to keep it at a reasonable level (slightly above the international level, since the assets of developing countries are, in general, at greater risk than those of developed countries). The perverse or unhealthy way of controlling inflation is mainly the utilization of an exchange rate anchor by the central bank, usually combined with high level of the interest rate around which the central bank tracks its monetary policy, instead of managing the interest rate to keep it slightly above the international level.
