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Speculative hyperinflations: when can we rule them out?

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  • Óscar J. Arce

    ()
    (Banco de España)

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/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/06/Fic/dt0607e.pdf
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Bibliographic Info

Paper provided by Banco de Espa�a in its series Banco de Espa�a 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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Keywords: hyperinflation; fiscal-monetary reform; multiple equilibria; hysteresis;

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Cited by:
  1. Sergey Pekarski, 2007. "Budget deficits and inflation feedback," Working Papers, Laboratory for Macroeconomic Analysis WP13_2007_12, Laboratory for Macroeconomic Analysis.

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