Modelling the transaction role of money and the essentiality of money in a hyperinflation context
AbstractThis paper uses an analytical approach and the precise definition of money essentiality given by Scheinkman (1980) with the aim to establish a formal theoretical link between the possibility of hyperinflationary paths and the concept of money essentiality. In this respect the paper contributes to the understanding of the well known failure of Cagan based inflationary finance models to produce explosive hyperinflation. We consider two standard optimizing monetary models representing alternative ways of modelling the transaction role of money. The paper considers a money-in-the-utility-function model and a cash-in-advance model where representative agent’s preferences are represented by general utility functions. We show that modelling monetary hyperinflation with perfect foresight is closely linked to the concept of money essentiality as defined by Scheinkman (1980). The possibility of explosive monetary hyperinflation in a perfect foresight inflationary finance model always relies on a sufficient level of money essentiality. The main contribution of this paper is to show that, whether in a cash-in-advance or in a money-in-the-utility-function framework, this sufficient level of money essentiality does not depend on the specific way, cash-in-advance or moneyin- the-utility-function, of modelling the role of money as a medium of exchange.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2008-12.
Date of creation: 2008
Date of revision:
Contact details of provider:
Postal: PEGE. 61, Aven. de la Forêt-Noire 67000 Strasbourg
Phone: +33 3 68 85 20 69
Fax: +33 3 68 85 20 70
Web page: http://www.beta-umr7522.fr/
More information through EDIRC
monetary hyperinflation; inflation tax; money essentiality.;
Find related papers by 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-06-07 (All new papers)
- NEP-CBA-2008-06-07 (Central Banking)
- NEP-MAC-2008-06-07 (Macroeconomics)
- NEP-MON-2008-06-07 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- de Holanda Barbosa, Fernando & Barros da Cunha, Alexandre, 2003. "Inflation tax and money essentiality," Economics Letters, Elsevier, Elsevier, vol. 78(2), pages 187-195, February.
- Casella, Alessandra & Feinstein, Jonathan S, 1990. "Economic Exchange during Hyperinflation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(1), pages 1-27, February.
- Evans, J Lynne, 1995. "The Demand for Money: Hyperinflation or High Inflation Traps," The Manchester School of Economic & Social Studies, University of Manchester, University of Manchester, vol. 63(0), pages 49-56, Suppl..
- Maurice Obstfeld & Kenneth Rogoff, 1982.
"Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?,"
NBER Working Papers
0855, National Bureau of Economic Research, Inc.
- Obstfeld, Maurice & Rogoff, Kenneth, 1983. "Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(4), pages 675-87, August.
- Obstfeld, Maurice & Rogoff, Kenneth S., 1983. "Speculative Hyperinflations in Maximizing Models: Can We Rule Them Out?," Scholarly Articles 12491027, Harvard University Department of Economics.
- Maurice Obstfeld & Kenneth Rogoff, 1981. "Speculative hyperinflations in a maximizing models: can we rule them out?," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 195, Board of Governors of the Federal Reserve System (U.S.).
- Evans, Jean Lynne & Yarrow, George Keith, 1981. "Some Implications of Alternative Expectations Hypotheses in the Monetary Analysis of Hyperinflations," Oxford Economic Papers, Oxford University Press, vol. 33(1), pages 61-80, March.
- Brock, William A., 1975. "A simple perfect foresight monetary model," Journal of Monetary Economics, Elsevier, Elsevier, vol. 1(2), pages 133-150, April.
- Vázquez Pérez, Jesús & Gutiérrez Huerta, María José, 2002. "Explosive Hyperinflation, Inflation Tax Laffer Curve and Modelling the use of Money," DFAEII Working Papers 2002-27, University of the Basque Country - Department of Foundations of Economic Analysis II.
- Vazquez, Jesus, 1998. "How high can inflation get during hyperinflation? A transaction cost demand for money approach," European Journal of Political Economy, Elsevier, Elsevier, vol. 14(3), pages 433-451, August.
- Bruno, Michael & Fischer, Stanley, 1990. "Seigniorage, Operating Rules, and the High Inflation Trap," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 105(2), pages 353-74, May.
- Tang, D.P. & Wang, P., 1993.
"On Relative Price Variability and Hyperinflation,"
Papers, Pennsylvania State - Department of Economics
5-93-5, Pennsylvania State - Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.