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Speculative hyperinflations: when can we rule them out?

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  • Óscar J. Arce

    () (Banco de España)

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    Abstract

    Motivated by a strong degree of hysteresis in the stock of monetization observed after the end of hyperinflations, I provide a cash-and-credit model in which the use of money exhibits some persistence because individuals can establish long-lasting credit relationships. This feature helps to account for the main stylized facts of extreme hyperinflations and reconcile some conflicting views on their causes, development and end without departing from rational expectations. Unlike the existing literature, I show that when hysteresis is possible, an orthodox fiscal-monetary reform that successfully stops a speculative hyperinflation may not be sufficient to prevent it.

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    File URL: http://www.bde.es/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/06/Fic/dt0607e.pdf
    File Function: First version, April 2006
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    Bibliographic Info

    Paper provided by Banco de España in its series Banco de España Working Papers with number 0607.

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    Length: 46 pages
    Date of creation: Apr 2006
    Date of revision:
    Handle: RePEc:bde:wpaper:0607

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    Related research

    Keywords: hyperinflation; fiscal-monetary reform; multiple equilibria; hysteresis;

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    Cited by:
    1. Pekarski, Sergey, 2011. "Budget deficits and inflation feedback," Structural Change and Economic Dynamics, Elsevier, vol. 22(1), pages 1-11, February.

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