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Speculative Hyperinflations: When Can We Rule Them Out?

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Author Info
Oscar J. Arce () (Resarch 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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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 376.

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Date of creation: 04 Jul 2006
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Handle: RePEc:sce:scecfa:376

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Keywords: price level indeterminacy fiscal and monetary interactions fiscal theory of the price level

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