Virtual Deficits and the Patinkin Effect
AbstractThe paper develops a model of inflationary finance that defines the fiscal deficit as a function of the virtual deficit--one that would be observed at zero inflation. It studies the negative relationship between the inflation rate and real government expenditures--the Patinkin effect--a powerful stabilizer during megainflation. The model outperforms other seigniorage models in explaining the persistence of four-digit inflation rates that never explode into an open hyperinflation. It also explains how apparently expansionist fiscal policies end in measured real deficits that are small and compatible with the small amount of seigniorage that can be collected at high inflation rates.
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Bibliographic InfoArticle provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.
Volume (Year): 45 (1998)
Issue (Month): 4 (December)
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Find related papers by JEL classification:
- E10 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - General
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
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