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Long-Term Inflation Outcomes after Hyperinflation: Theory and Evidence

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  • Federico Guerrero

    ()
    (Department of Economics, University of Nevada, Reno)

Abstract

This paper does two things. First, it shows both anecdotal and cross-country evidence that indicates that countries that have experienced hyperinflation display significantly lower long-term rates of inflation than countries that lack the same experience. Secondly, it presents a model to rationalize the main empirical finding. There is more than one mechanism through which the long-term effects of hyperinflation may have an impact on long-term inflation outcomes. The suggested explanation this paper offers is that hyperinflations act by reducing the social costs of increasing the collection of conventional, distorsionary taxes relative to the collection of the inflation tax.

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File URL: http://www.business.unr.edu/econ/wp/papers/UNRECONWP06015.pdf
File Function: First version, 2006
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Bibliographic Info

Paper provided by University of Nevada, Reno, Department of Economics & University of Nevada, Reno , Department of Resource Economics in its series Working Papers with number 06-015.

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Length: 34 pages
Date of creation: Dec 2006
Date of revision:
Handle: RePEc:unr:wpaper:06-015

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Keywords: Hyperinflations; monetary institutions; inflation; central banks;

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  1. George T. McCandless, Jr. & Warren E. Weber, 1995. "Some monetary facts," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-11.
  2. Guerrero, Federico, 2006. "Does inflation cause poor long-term growth performance?," Japan and the World Economy, Elsevier, vol. 18(1), pages 72-89, January.
  3. Stanley Fischer & Ratna Sahay & Carlos A. V�gh, 2002. "Modern Hyper- and High Inflations," Journal of Economic Literature, American Economic Association, vol. 40(3), pages 837-880, September.
  4. Alex Cukierman & Sebastian Edwards & Guido Tabellini, 1989. "Seigniorage and Political Instability," NBER Working Papers 3199, National Bureau of Economic Research, Inc.
  5. Kenneth Rogoff, 2003. "Globalization and global disinflation," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 45-78.
  6. Sargent, Thomas J & Wallace, Neil, 1973. "The Stability of Models of Money and Growth with Perfect Foresight," Econometrica, Econometric Society, vol. 41(6), pages 1043-48, November.
  7. Lucas, Robert E, Jr, 1996. "Nobel Lecture: Monetary Neutrality," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 661-82, August.
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