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Can We Rule Out Speculative Hyperinflations in Maximising Models? Yes, We Can

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  • William Coleman

Abstract

A critique is advanced of the contention of Obstfeld and Rogoff (1983) that in a fiat money regime, 'speculative hyperinflations can be excluded only through severe restrictions' on preferences. It is maintained here, in contrast, that no more than the infinity of the marginal utility of real balances at zero real balances is sufficient to rule out speculative hyperinflations. What Obstfeld and Rogoff have successfully drawn attention to is the theoretical possibility of money having strictly zero purchasing power. But the phenomenon of zero purchasing power has no explanatory power for historically observed hyperinflations, or any historically observed modern economy.

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  • William Coleman, 2008. "Can We Rule Out Speculative Hyperinflations in Maximising Models? Yes, We Can," ANU Working Papers in Economics and Econometrics 2008-487, Australian National University, College of Business and Economics, School of Economics.
    • Handle: RePEc:acb:cbeeco:2008-487
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    File URL: https://www.cbe.anu.edu.au/researchpapers/econ/wp487.pdf
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    References listed on IDEAS

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    1. Obstfeld, Maurice & Rogoff, Kenneth, 1983. "Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 675-687, August.
    2. Narayana R. Kocherlakota & Christopher Phelan, 1999. "Explaining the fiscal theory of the price level," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 23(Fall), pages 14-23.
    3. William Oliver Coleman, 2007. "The Causes, Costs and Compensations of Inflation," Books, Edward Elgar Publishing, number 3906.
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    More about this item

    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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