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The Monetary Analysis of Hyperinflation and the Appropriate Specification of the Demand for Money

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  • Sokic Alexandre

    (Ecole Supriéure du Commerce Extérieur, Paris, France)

Abstract

This paper emerges from the failure of the traditional models of hyperinflation with perfect foresight. Insights from two standard optimizing monetary settings and economic reasoning from case studies of extreme hyperinflation episodes provide relevant requirements for the specification of the demand for money during hyperinflation. The paper demonstrates that the possibility of perfect foresight monetary hyperinflation paths depends robustly on the essentiality of money. The essentiality of money provides some depth of explanation of the reasons why the popular semi-log schedule of the demand for money is not appropriate for analysing monetary hyperinflation with perfect foresight. The paper proposes a simple test of money essentiality for the appropriate specification of the demand-for-money equation in empirical studies of hyperinflation.

Suggested Citation

  • Sokic Alexandre, 2012. "The Monetary Analysis of Hyperinflation and the Appropriate Specification of the Demand for Money," German Economic Review, De Gruyter, vol. 13(2), pages 142-160, May.
    • Handle: RePEc:bpj:germec:v:13:y:2012:i:2:p:142-160
    DOI: 10.1111/j.1468-0475.2011.00543.x
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    Cited by:

    1. Hartwell, Christopher A & Szybisz, Martin Andres, 2021. "Corralling Expectations: The Role of Institutions in (Hyper)Inflation," MPRA Paper 105612, University Library of Munich, Germany.
    2. Zhao, Liuyan, 2017. "The behavior of money demand in the Chinese hyperinflation," China Economic Review, Elsevier, vol. 42(C), pages 145-154.
    3. Sokic, Alexandre & FABRIS, Nikola, 2013. "Euroization and cyclical stabilization in Montenegro: an empirical analysis," MPRA Paper 46537, University Library of Munich, Germany.

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    More about this item

    Keywords

    Hyperinflation; inflation tax; money essentiality; demand for money;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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