This paper analyzes the design of the stabilization policy, particularly its cost model, which was applied in Chile in 1965, and was then used as the basis for policy in following years. It briefly describes the choice of strategy, develops the analytical model used, sets forth specific policy proposals, and evaluates the results. Emphasis is placed mainly on the relationship between analytical tools and policy making. No attempt is made to discuss thoroughly the theory of inflation or to develop a comprehensive historical explanation of the Chilean inflationary process; both of these subjects have already been widely examined and discussed.