Hyperinflation with Currency Substitution: Introducing an Indexed Currency
AbstractCurrency substitution (CS) or indexed currencies are believed to increase the equilibrium rate of inflation. This result derives from a setup in which the government finances a certain amount of real resources through money printing and where CS reduces the base of the inflation tax. This paper shows this intuition wrong for those situations where the hyperinflation is expectations-driven. Incorporating CS in an Obstfeld-Rogoff (1983) framework, we show, reduces the inflation rates along the hyperinflationary equilibrium. The intuition is simple: if money losses 'essentiality' - because a very close substitute develops or becomes available - then the inflation rates which induce agents to reduce their monetary balances fall. The implications of the model are then tested empirically. Copyright 1994 by Ohio State University Press.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.
Volume (Year): 26 (1994)
Issue (Month): 3 (August)
Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Vazquez, Jesus, 1998. "How high can inflation get during hyperinflation? A transaction cost demand for money approach," European Journal of Political Economy, Elsevier, vol. 14(3), pages 433-451, August.
- William C. Gruben & Darryl McLeod, 2004. "Currency competition and inflation convergence," Center for Latin America Working Papers 0204, Federal Reserve Bank of Dallas.
- Alexandre Sokic, 2012.
"The Monetary Analysis of Hyperinflation and the Appropriate Specification of the Demand for Money,"
German Economic Review,
Verein für Socialpolitik, vol. 13(2), pages 142-160, 05.
- Sokic, Alexandre, 2010. "The monetary analysis of hyperinflation and the appropriate specification of the demand for money," MPRA Paper 21503, University Library of Munich, Germany.
- Gustavo Suárez, 1999.
"Tecnología De Transacciones Endógena Y Los Costos De La Inflación,"
ENSAYOS SOBRE POLÍTICA ECONÓMICA,
BANCO DE LA REPÚBLICA - ESPE.
- Gustavo Suárez, . "Tecnología de Transacciones Endógena y los Costos de la Inflación," Borradores de Economia 119, Banco de la Republica de Colombia.
- Gustavo Suárez, 1999. "Tecnología De Transacciones Endógena Y Los Costos De La Inflación," BORRADORES DE ECONOMIA 003545, BANCO DE LA REPÚBLICA.
- Kem Reat Viseth, 2001. "Currency Substitution and Financial Sector Developments in Cambodia," International and Development Economics Working Papers idec01-4, International and Development Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If references are entirely missing, you can add them using this form.